Power Transmission EPC Sector: Dawn in sight

Power Transmission EPC Sector: Dawn in sight Kalpataru Power Transmission (KPP) CMP Rs78 Target Price Rs102 Potential Upside/Downside +31% Sector Capital Goods Bloomberg / Reuters KPP IN / KAPT.BO Shares o/s (mn) 154 Market cap. (Rs mn) 12,012 Market cap. (US$ mn) 218 3-m daily average vol. 52,959 KEC International (KECI) CMP Rs56 Target Price Rs64 Potential Upside/Downside +14% Sector Capital Goods Bloomberg / Reuters KECI IN / KECL.BO Shares o/s (mn) 257 Market cap. (Rs mn) 14,392 Market cap. (US$ mn) 261 3-m daily average vol. 45,854 Jyoti Structures (JYS) CMP Rs41 Target Price Rs42 Potential Upside/Downside +3% Sector Capital Goods Bloomberg / Reuters JYS IN / JYTS.BO Shares o/s (mn) 82 Market cap. (Rs mn) 3,362 Market cap. (US$ mn) 61 3-m daily average vol. 63,983 18 July, 2012 Analyst: Rohit Singh 91-22-4322 1186 rohit.singh@idbicapital.com 1

Summary Transmission Capex related companies have been at the receiving end over the last 3 years. Faced with intense competition, rising interest rates, working capital constraints and payment delays the sector has seen profitability and thus, valuations shrinking. One green shoot in this has been consistent order inflow. We reckon the sector s order inflow visibility is set to get stronger in the future; led not only by the ever expanding (and reliant) PGCIL CAPEX, but also the diversified appeal of burgeoning overseas opportunity and steadily growing Railways focus. Competitive pressures have stabilised and while we don t expect cost of funds to shrink in a hurry, interest rates do seem to have peaked. Key players like KECI, KPP and JYS are getting selective and preferring multilateral funding agencies backed SEB projects to counter payment delays. It indicates that working capital situation should also start to improve, albeit slowly. We foresee double digit growth for our coverage universe over FY14 and also improving return ratios. With valuations at 40-60% discount to their 6-yr average, we re-iterate our overweight stance on the T&D space betting on better visibility and improving profitability. While KPP offers highest return in our transmission EPC coverage universe due to sharp correction in stock price, KECI is structurally better placed on account of i) widespread geographical/sectoral presence ii) resilient order inflow iii) comfortable w/c cycle iv) better return ratios. Table: Financial snapshot CMP TP Revenue (Rs mn) EBITDA (Rs mn) EPS (Rs) PER (x) EV/EBITDA (x) RoE (%) RoCE (%) (Rs) (Rs) Reco FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E FY14E FY14E JYS 41 42 HOLD 29,196 32,750 3,081 3,377 10.9 12.9 3.7 3.2 2.9 2.7 17.6 22.8 KPP 78 102 BUY 63,562 69,527 5,912 6,512 13.4 14.2 5.8 5.5 2.5 2.6 10.2 16.5 KECI 56 64 BUY 64,444 71,133 5,198 5,799 7.4 8.5 7.5 6.5 3.9 3.3 15.9 19.4 2

Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Power Generation: 76GW planned during 12th FYP Figure: Deficit Scenario (%) Table: 12th Plan Capacity Addition Plan - (2.0) (4.0) (6.0) (8.0) (10.0) (12.0) (14.0) (16.0) (MW) Hydro Coal Gas Total Thermal Nuclear Total Central 5,632 10,600 826 11,426 2,800 19,858 State 1,456 12,080 260 12,340-13,796 Private 2,116 40,015-40,015-42,131 Total 9,204 62,695 1,086 63,781 2,800 75,785 Peak Deficit Energy Deficit Source: CEA Source: CEA Despite increased backing down activity from Discoms, All India peak/energy deficit is hovering at 8.1%/7.5%. During XIIth plan, capacity addition target has been set at 76GW to bring down deficit to 5% level by end-12th FYP. Southern region is facing maximum deficit (12.2% during May 2012) due to poor grid connectivity. 3

Significant T&D CAPEX over 2012-2022 : PGCIL trend key comfort Historically, T&D CAPEX has been below international norms (1:1 Gen : T&D). During 11th FYP, T&D CAPEX stood at 46% of Generation CAPEX vs. planned 79%. The shortfall was led by Distribution CAPEX achievement (only ~33%). However, Transmission CAPEX was encouraging at ~88% of the targeted. India has planned Rs4.9 tn/rs5.5 tn T&D CAPEX in 12th /13th FYP, which is 76%/79% of generation CAPEX respectively. Table: 12th Plan Capacity Addition Plan (Rs bn) XIth Plan XIIth Plan XIIIth Plan Generation CAPEX 4,796 6,380 7,000 Transmission CAPEX 1,230 1,800 2,000 Distribution CAPEX 1,000 3,060 3,500 Sub-total (A+B) 2,230 4,860 5,500 T&D CAPEX as % age of Generation CAPEX Source: CEA 46% 76% 79% Historically, Transmission CAPEX achievement has been encouraging, led by PGCIL spending. During 12th /13th FYP major part of transmission spending is slated by PGCIL, which gives us confidence of significant achievement of Transmission CAPEX. 4

(MW) Inter-regional Transmission Capacity Addition: 66GW by end-fy17 Figure: Inter-regional capacity is up for 26% CAGR 70,000 60,000 50,000 40,000 30,000 20,000 10,000 Source: CEA - Existing at the end-10th plan Expected at the end-11th plan Addition during 12th plan Expected at the end-12th plan ER-SR ER-NR ER-WR ER-NER NR-WR WR-SR NER/ER-NR/WR Inter-regional transmission capacity has been major thrust area. During 11th FYP, 11GW capacity (16% CAGR) was added. Moreover, 12th FYP planed capacity addition stands at ~40GW (26% CAGR). NR-WR would add maximum capacity of 10GW, followed by ER-WR/ER-NR 8.4GW/7.9GW respectively by FY17. Moreover, given the poor connectivity of Southern region to other regions, transmission capacity addition of 6.4GW in between WR-SR would come as big respite to power deficit in South India. 5

6th plan 7th plan 8th plan 9th plan 10th plan 11th plan* 11th plan** 12th plan** 6th plan 7th plan 8th plan 9th plan 10th plan 11th plan* 11th plan** 12th plan** '000 CKMs '000 MVA Transmission Capacity Addition: Pick up expected Figure: Transmission capacity addition (ckms) Figure: Transformation capacity addition (MVA) 200 180 160 140 120 100 80 60 40 20-35 30 25 20 15 10 5 - '000 CKMs 350 300 250 200 150 100 50-180 160 140 120 100 80 60 40 20 - '000 MVA Source: CEA 400kV 220kV 765kV HVDC Bipole 400kV 220kV 765kV HVDC Bipole During 12th FYP, 107,000 ckms/283,000 MVA transmission/transformation capacity addition is planned. Given the 11th FYP CAGR of 8%/12% in transmission/transformation capacity, required CAGR of 9%/14% seems achievable during 12th FYP. Activity towards 765kv transmission lines and transformation capacity is expected to pick up significantly during 12th FYP, with capacity addition of 22,000 ckms/1,49,000 MVA respectively. Which effectively means, technology would be the differentiator. 6

(Rs bn) PGCIL: Doubling CAPEX should sustain order inflows PGCIL s 12th FYP CAPEX break up 250 200 150 12th FYP Grid Strengthening 12% Central Sector Generation 22% 100 50 IPP 52% UMPP 14% - Source: PGCIL Over FY07-FY12, Power Grid spent Rs550 bn, achieving its targeted CAPEX. Power Grid has set a target of Rs1,000 bn+ CAPEX for 12th plan (2012-17), which would keep order inflow intact for transmission EPC players. PGCIL to spend 52% of the planned CAPEX towards development of High Capacity Power Transmission Corridors (See Appendix:3). These corridors are based on multiple IPP based in one location. Therefore, delay in one or two power plants would not cause deferment of transmission line. Moreover, Grid strengthening and Central sector generation related CAPEX of Power Grid is expected to remain on schedule. Only concern is on CAPEX towards UMPP related TL of Power Grid as awarding of UMPPs is getting delayed. 7

(Rs bn) State CAPEX pick up would be icing on the cake Figure: All India CAPEX : 12th/13th FYP 1200 1000 800 600 400 200 0 XII th FYP XIII th FYP Source: CEA Private State PGCIL During 11 th FYP, Transmission CAPEX from Central and State sector stood at ~R550 bn/rs500 bn, up ~190%/72% respectively over 10 th FYP. Central sector achieved 100% of its targeted CAPEX. However, State sector s CAPEX achievement fell short by ~33% due to their challenging financial position. During 12 th FYP, given the persisting poor financial health of SEBs (despite 15% average tariff hike taken during last one year), CAPEX of Rs550 bn from State sector seems challenging. However, we are hopeful of 50%-60% achievement from State sector on account of i) few State Transmission Utilities are in good financial shape and spending actively towards transmission network expansion/upgradation ii) projects awarding to private players on BOOT basis. 8

Overseas opportunity : An added bonus Year 2008-2015 (US$ bn) Year 2008-2030 (US$ bn) Region Transmission Distribution Total Transmission Distribution Total North America 111 240 351 354 764 1,118 Europe 71 214 285 226 684 910 Pacific 55 96 151 137 238 375 Europe/Eurasia 31 104 135 93 311 404 Asia 323 666 989 949 1,958 2,907 Middle East 25 52 77 86 178 264 Africa 21 42 63 68 140 208 Latin America 29 61 90 92 191 283 Source: WEO 2009, IEA Indian transmission EPC players are focusing on overseas T&D opportunity to offset slowdown in state/private sector CAPEX. International market presents US$6.5 tn opportunity over 2008-2030. KECI/KPP have significance presence across the globe, resulting in ~65%/55% overseas order book. While, JYS has ~30% order book coming from outside India. 9

(Rs bn) Railways CAPEX : Another avenue of order inflow Figure: An opportunity worth Rs90 bn for EPC players in FY13 700 600 500 400 300 200 100 - FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12P FY13E 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Source: Indian Railways; IDBI Capital Research Scope of EPC players Total Railway CAPEX % of total During FY13, Railways plans Rs600 bn CAPEX, of which scope for EPC players (electrification, track laying and signaling) stands at ~Rs90 bn. In addition, an opportunity worth Rs60 bn over next 5 years w.r.t. Eastern and Western Dedicated Freight Corridors. Metro projects involving a total investment of ~Rs600 bn (US$11.8 bn) with a total route length of over 272 kms are currently in the advanced stages of planning. 10

Company Section 11

(Rs bn) Order book 19% CAGR in 11th FYP: Giving no reasons to complain Figure: Order book Figure: Book to bill 100 3.0 90 80 2.5 70 60 2.0 50 1.5 40 30 1.0 20 10 0.5 - FY08 FY09 FY10 FY11 FY12 - FY08 FY09 FY10 FY11 FY12 * Standalone KPP* KECI JYS KPP* KECI JYS Order book growth has been strong for KECI/KPP/JYS. KECI recorded a 5-Yr (FY08-FY12) CAGR of 20%, followed by 16%/15% of KPP and JYS. However, due to strong revenue growth, book to bill ratio has come down from peak of 2.5x/2.0x to 2.0x/1.6x for KPP and JYS respectively at end-fy12. KECI has largely maintained it at 1.5x. Going forward, given the opportunity discussed earlier, despite revenue growth of 15-20%, book to bill should sustain at current levels. 12

(Rs bn) Last 2-yr order book: Largely encouraging Figure: Order book trend 100 90 80 70 60 50 40 30 20 10 - Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 * Standalone KPP* KECI JYS When we take a closer look at order book position during relatively slow last 2 fiscals (8 quarters). KECI and KPP reported order inflow CQGR of 6%/4% respectively. However, JYS has just managed to report CQGR of 1%. JYS has suffered due to slow activity from State sector and limited global presence. 13

Market Share of Key Players in PGCIL s orders has shrunk L&T IVRCL 3% Infrastructu re & Projects Ltd. 6% Gammon India 7% JYS 1% Source: PGCIL Figure: FY11 market share Shyama 3% JV of SPIC- SMO & ASTER 8% KPP 8% KECI 12% Others 4% Tata Projects 24% EMC + JVs 24% Figure: FY12 market share JV of RS & Skipper 5% Deepak Cables + JVs 10% Tata Projects 17% Gammon India 13% Cumulative market share of KECI/KPP/JYS has fallen from high of ~45% during FY09 to 21%/25% in FY11/F12 respectively due to intense competition. TATA Projects and EMC (along with various partners) cornered 48% orders from PGCIL in FY11. In FY12, 42% orders were bagged by TATA Projects, Gammon India and L&T put together. We expect reduction in number of bidders for PGCIL orders due to stricter billing cycle and shift towards high voltage Substations/TL, which would lead to improvement in KECI/KPP/JYS market share. JYS 8% KECI 7% KPP 10% Others 8% EMC 10% L&T 12% 14

(%) (%) Order book diversification to counter slowdown in one segment Figure: Sectoral Figure: Geographical 102 120 100 98 100 96 94 80 92 90 60 88 86 40 84 20 82 80 KECI KPP* JYS - KECI KPP JYS T&D Pipeline Water Telecom Railways Cable India Middle East + Africa South Asia (Ex-India) CIS Americas To counter the competition in T&D, EPC players have focused on diversification of order book to sustain the inflow during lean phase of some sector. KECI, with its presence in various sectors and geographies is the most diversified EPC player. However, JYS is dependent on domestic T&D orders only, which handicaps its growth potential in other sectors/geographies. 15

Working Capital: To stabilise going forward Figure: Working Capital trend FY13E FY12P FY11 FY10 FY09 0 50 100 150 200 250 Days KPP KECI JYS Due to delays in payment from State Utilities, working capital remains under stress for EPC players. KECI and KPP have reduced w/c days from 112/215 days during FY09 to 91/173 days in FY12. However, it got stretched for JYS from 116 days to 155 days over same period. We believe, further deterioration in w/c cycle is unlikely as EPC players have restricted themselves to financially strong SEBs and funded projects only. Efficient working capital management would lead to better profitability. 16

(%) EBITDA Margin bottoming Figure: EBITDA Margin 14.0 13.0 12.0 11.0 10.0 9.0 8.0 7.0 6.0 FY10 FY11 FY12 FY13E FY14E JYS KECI KPP All three companies have witnessed sharp fall in EBITDA margins on account of intense competition led by slowdown in Infrastructure order inflow. In last two fiscals, KECI/KPP/JYS s margins contracted by 228/150/190bps respectively. However, we believe, competition is becoming healthy, which would bring rationality to margins. 17

(%) (%) NPM interest rate sensitive; should improve from here on Figure: NPM - Interest rate sensitivity 6.0 15.0 5.0 14.5 14.0 4.0 13.5 3.0 13.0 2.0 12.5 12.0 1.0 11.5 0.0 FY09 FY10 FY11 FY12 FY13E FY14E 11.0 JYS KECI KPP Average PLR Source: Company; RBI; IDBI Capital Research Profitability of EPC players is highly sensitive to interest rates. Since FY10, interest rate has gone up by 175bps, eating up 217/209/85bps from PAT margin for KECI/JYS/KPP respectively. With interest rate peaking any easing would provide upward push to NPMs going forward. 18

(%) (%) KEC International Ltd. (KECI) KECI has reported 20%/5% revenue/pat CAGR over FY08-FY12. In FY12, RoE has come down to 15% from peak of 28% in last 5 years due to lower OPM and high interest cost. The company has outperformed its peers in terms of revenue/pat CAGR and RoEs. We see 90/120bps improvement in RoE/RoCE over FY12-FY14E. Figure: Financial trends BUY 35.0 30.0 30.0 25.0 25.0 20.0 20.0 15.0 15.0 10.0 10.0 22 14 15 30 5.0 11 10 5.0 0.0 - FY09 FY10 FY11 FY12 FY13E FY14E Table: Financial snapshot Year Revenue EBITDA EBITDA(%) Adj.PAT EPS (Rs) PE(x) EV/EBITDA (x) ROE (%) RoCE (%) FY10 39,072 4,059 10.4 1,897 7.7 7.2 5.3 28.2 26.8 FY11 44,742 4,625 10.3 2,056 8.0 6.9 5.8 23.7 20.8 FY12 58,147 4,703 8.1 1,561 6.1 9.1 4.5 15.0 18.2 FY13E 64,444 5,198 8.1 1,892 7.4 7.5 3.9 15.7 18.7 FY14E 71,133 5,799 8.2 2,183 8.5 6.5 3.3 15.9 19.4 Revenue Growth RoE RoCE 19

Financial Summary Profit and Loss Account Y/E 31 Mar (Rs mn) FY10 FY11 FY12 FY13E FY14E Net sales 39,072 44,742 58,147 64,444 71,133 growth (%) 14.0 14.5 30.0 10.8 10.4 Operating expenses (35,014) (40,117) (53,444) (59,246) (65,334) EBITDA 4,059 4,625 4,703 5,198 5,799 growth (%) 34.7 13.9 1.7 10.5 11.6 Depreciation (270) (408) (479) (580) (611) EBIT 3,788 4,216 4,224 4,618 5,188 Interest paid (865) (1,075) (1,597) (1,728) (1,782) Other income 10 26 616 - - Pre-tax profit 2,934 3,167 3,243 2,890 3,406 Tax (1,037) (1,111) (1,150) (999) (1,223) Effective tax rate (%) 35.3 35.1 35.5 34.6 35.9 Net profit 1,897 2,056 2,093 1,892 2,183 Adjusted net profit 1,897 2,056 1,561 1,892 2,183 growth (%) 62.4 8.4 (24.1) 21.2 15.4 Shares o/s (mn nos) 247 257 257 257 257 Cash Flow Statement Y/E 31 Mar (Rs mn) FY10 FY11 FY12 UA FY13E FY14E Pre-tax profit 2,934 3,167 3,243 2,890 3,406 Depreciation 322 796 1,813 505 531 Tax paid (1,037) (1,111) (1,150) (999) (1,223) Chg in working capital (2,956) (3,194) 3,274 (1,601) (945) Other operating activities 623 (2,881) 1,787 1,142 355 Cash flow from operations (a) (114) (3,222) 8,967 1,938 2,126 Capital expenditure (1,907) (2,005) (2,726) (697) (734) Cash flow from investing (b) (1,907) (2,005) (2,726) (697) (734) Equity raised/(repaid) 21 0 21 - - Debt raised/(repaid) 1,649 6,454 (3,936) 3,380 (2,650) Dividend (incl. tax) (361) (312) (386) (274) (326) Cash flow from financing (c) 1,309 6,142 (4,302) 3,106 (2,976) Net chg in cash (a+b+c) (713) 916 1,939 4,346 (1,585) Balance Sheet Y/E 31 Mar (Rs mn) FY10 FY11 FY12 UA FY13E FY14E Net fixed assets 7,200 8,409 9,321 9,513 9,716 Other non-curr assets - 2,812 1,612 412 - Current assets 26,775 35,873 36,847 42,792 44,870 Inventories 2,498 3,359 2,735 2,988 3,306 Sundry Debtors 19,624 26,177 26,228 27,133 29,946 Cash and Bank 698 1,614 3,553 7,899 6,315 Loans and advances 3,956 4,723 4,331 4,771 5,303 Total assets 33,975 47,094 47,781 52,718 54,586 Shareholders' funds 7,871 9,466 11,306 12,818 14,567 Share capital 514 514 535 535 535 Reserves & surplus 7,357 8,952 10,771 12,283 14,032 Total Debt 7,867 14,322 10,385 13,765 11,115 Other liabilities 8,329 14,819 10,882 14,309 11,710 Curr Liab & prov 18,332 23,284 25,593 25,590 28,309 Current liabilities 17,776 22,809 25,593 25,590 28,309 Provisions 556 475 - - - Total liabilities 26,104 37,628 36,475 39,900 40,019 Total equity & liabilities 33,975 47,094 47,781 52,718 54,586 Book Value (Rs) 32 37 44 50 57 Financial Ratios Y/E 31 Mar (Rs mn) FY10 FY11 FY12 UA FY13E FY14E EBITDA margin (%) 10.4 10.3 8.1 8.1 8.2 ROE (%) 28.2 23.7 15.0 15.7 15.9 ROCE (%) 26.8 20.8 18.2 18.7 19.4 Net margin (%) 4.9 4.6 2.7 2.9 3.1 Net Debt/Equity (x) 0.9 1.3 0.6 0.5 0.3 Inventory days 23.3 27 17 17 17 Receivable days 183 214 165 154 154 Payable days 100 110 91 89 90 20

(%) (%) Kalpataru Power Transmission Ltd. (KPP) KPP has grown at 15%/3% revenue CAGR over FY08-FY12. In FY12, RoE has come down to 11% from peak of 17% in last 5 years due to lower OPM, high interest cost and increased equity contribution. Revenue growth and RoEs are lowest amongst three. However, we see 110bps improvement in RoCE over FY12-FY14E. Table: Financial snapshot Figure: Financial trends Year Revenue EBITDA EBITDA(%) Adj.PAT EPS (Rs) PE(x) EV/EBITDA (x) ROE (%) RoCE (%) FY10 40,319 4,404 10.9 1,776 11.6 7.3 4.9 16.8 18.3 FY11 43,547 4,830 11.1 2,000 13.0 6.5 4.0 14.0 16.9 FY12 53,080 5,004 9.4 1,887 12.3 6.9 3.1 10.6 15.4 FY13E 63,562 5,912 9.3 2,058 13.4 5.8 2.5 10.6 16.2 FY14E 69,527 6,512 9.4 2,180 14.2 5.5 2.2 10.2 16.5 30.0 25.0 20.0 15.0 10.0 5.0 0.0 21 24 8 22 20 10 FY09 FY10 FY11 FY12 FY13E FY14E BUY Revenue Growth RoE RoCE 19.0 18.5 18.0 17.5 17.0 16.5 16.0 15.5 15.0 14.5 14.0 13.5 21

Financial Summary Profit and Loss Account Y/E 31 Mar (Rs mn) FY10 FY11 FY12 FY13E FY14E Net sales 40,319 43,547 53,080 63,562 69,527 growth (%) 24.2 8.0 21.9 19.7 9.4 Operating expenses (35,914) (38,716) (48,076) (57,651) (63,016) EBITDA 4,404 4,830 5,004 5,912 6,512 growth (%) 33.5 9.7 3.6 18.1 10.2 Depreciation (746) (880) (986) (1,449) (1,557) EBIT 3,659 3,950 4,018 4,462 4,955 Interest paid (1,260) (1,469) (1,576) (1,770) (2,100) Other income 247 418 333 537 564 Pre-tax profit 2,646 2,899 2,775 3,230 3,418 Tax (691) (773) (735) (832) (877) Effective tax rate (%) 26.1 26.7 26.5 25.8 25.6 Net profit 1,955 2,126 2,040 2,397 2,542 Adjusted net profit 1,776 2,000 1,887 2,058 2,180 growth (%) 60.2 12.6 (5.7) 9.1 5.9 Shares o/s (mn nos) 153 153 153 153 153 Cash Flow Statement Y/E 31 Mar (Rs mn) FY10 FY11 FY12 UA FY13E FY14E Pre-tax profit 2,646 2,899 2,775 3,230 3,418 Depreciation 696 819 731 842 715 Tax paid (701) (830) (873) (832) (877) Chg in working capital 831 (521) 9,216 1,452 (113) Other operating activities 72 (33) (511) (300) (300) Cash flow from operations (a) 3,544 2,333 11,337 4,392 2,844 Capital expenditure (2,972) (2,908) (989) (1,823) (1,858) Chg in investments (32) (1,290) 1,290 - - Cash flow from investing (b) (3,004) (4,198) 301 (1,823) (1,858) Equity raised/(repaid) 4 4,402 2 - - Debt raised/(repaid) (437) (696) (517) 600 850 Dividend (incl. tax) (263) (264) (289) (304) (319) Chg in monorities 128 (260) - - - Cash flow from financing (c) (567) 3,182 (805) 296 531 Net chg in cash (a+b+c) (27) 1,317 10,833 2,865 1,517 Balance Sheet Y/E 31 Mar (Rs mn) FY10 FY11 FY12 UA FY13E FY14E Net fixed assets 8,739 10,828 11,087 12,067 13,210 Investments 66 1,357 66 66 66 Other non-curr assets 83 202 83 83 83 Current assets 28,862 34,862 48,419 55,650 60,644 Inventories 3,485 4,035 5,560 5,698 6,193 Sundry Debtors 18,263 20,747 20,342 22,991 24,986 Cash and Bank 557 1,873 12,706 15,571 17,088 Loans and advances 3,266 4,080 5,518 6,661 7,264 Total assets 37,750 47,248 59,656 67,867 74,004 Shareholders' funds 11,516 17,080 18,532 20,325 22,248 Share capital 265 307 307 307 307 Reserves & surplus 10,006 15,655 16,952 18,406 19,967 Total Debt 9,014 8,318 7,801 8,401 9,251 Other liabilities 9,210 8,925 7,801 8,401 9,251 Curr Liab & prov 18,617 23,092 35,024 41,258 44,743 Current liabilities 17,024 21,244 33,323 39,141 42,506 Provisions 1,593 1,849 1,701 2,117 2,237 Total liabilities 26,234 30,169 41,124 47,542 51,757 Total equity & liabilities 37,750 47,248 59,656 67,867 74,004 Book Value (Rs) 75 111 121 132 145 Financial Ratios Y/E 31 Mar (Rs mn) FY10 FY11 FY12 UA FY13E FY14E EBITDA margin (%) 10.9 11.1 9.4 9.3 9.4 ROE (%) 16.8 14.0 10.6 10.6 10.2 ROCE (%) 18.3 16.9 15.4 16.2 16.5 Net margin (%) 4.4 4.6 3.6 3.2 3.1 Net Debt/Equity (x) 0.7 0.4-0.3-0.4-0.4 Inventory days 31.5 34 38 33 33 Receivable days 165 174 140 132 131 Payable days 70 75 84 82 82 22

(%) (%) Jyoti Structures Ltd. (JYS) JYS has shown revenue/pat CAGR of 18%/6% over FY08-FY12. Figure: Financial trends 40.0 HOLD 35.0 In FY12, RoE has come down to 16% from peak of 25% in last 5 years. Despite impressive revenue growth, RoEs have disappointed. However, we see improvement in return ratios going forward despite pressure on margin. 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 12 34 10 19 9 12 FY09 FY10 FY11 FY12 FY13E FY14E 30.0 25.0 20.0 15.0 10.0 5.0 - Revenue Growth RoE RoCE Table: Financial snapshot Year Revenue EBITDA EBITDA(%) Adj.PAT EPS (Rs) PE(x) EV/EBITDA (x) ROE (%) RoCE (%) FY10 20,131 2,600 12.9 1,121 11.0 3.0 2.5 24.7 30.1 FY11 23,996 2,791 11.6 998 9.8 3.3 2.7 18.7 26.5 FY12 26,776 2,950 11.0 930 9.1 3.6 3.4 15.8 22.3 FY13E 29,196 3,081 10.6 1,114 10.9 3.7 2.9 17.3 21.5 FY14E 32,750 3,377 10.3 1,317 12.9 3.2 2.7 17.6 22.8 23

Financial Summary Profit and Loss Account Y/E 31 Mar (Rs mn) FY10 FY11 FY12 FY13E FY14E Net sales 20,131 23,996 26,776 29,196 32,750 growth (%) 10.2 19.2 11.6 9.0 12.2 Operating expenses (17,585) (21,245) (23,827) (26,227) (29,502) EBITDA 2,600 2,791 2,950 3,081 3,377 growth (%) 25.3 7.3 5.7 4.4 9.6 Depreciation (169) (210) (229) (191) (189) EBIT 2,431 2,582 2,721 2,890 3,188 Interest paid (786) (1,028) (1,436) (1,261) (1,263) Other income - 9 75 - - Pre-tax profit 1,645 1,563 1,360 1,629 1,925 Tax (524) (565) (430) (515) (608) Effective tax rate (%) 31.9 36.1 31.6 31.6 31.6 Net profit 1,121 998 930 1,114 1,317 Adjusted net profit 1,121 998 930 1,114 1,317 growth (%) 31.7 (10.9) (6.8) 19.8 18.2 Cash Flow Statement Y/E 31 Mar (Rs mn) FY10 FY11 FY12 UA FY13E FY14E Pre-tax profit 1,645 1,563 1,360 1,629 1,925 Depreciation 1,238 1,559 2,032 2,513 2,892 Tax paid (438) (563) (430) (515) (608) Chg in working capital (173) (1,897) (2,204) 621 (803) Other operating activities (2,129) (1,033) (2,828) (2,491) (2,952) Cash flow from operations (a) 143 (370) (2,069) 1,756 454 Capital expenditure (512) (450) (402) (438) (524) Cash flow from investing (b) (512) (448) (402) (438) (524) Equity raised/(repaid) 52 16 (35) - - Debt raised/(repaid) 565 1,077 2,800 (1,500) 500 Dividend (incl. tax) (96) (143) (143) (162) (188) Cash flow from financing (c) 521 950 2,622 (1,662) 312 Net chg in cash (a+b+c) 151 132 151 (344) 242 Balance Sheet Y/E 31 Mar (Rs mn) FY10 FY11 FY12 UA FY13E FY14E Net fixed assets 1,778 2,044 2,156 2,403 2,738 Investments 167 165 165 165 165 Current assets 13,487 15,716 19,811 19,553 21,679 Inventories 2,472 2,307 2,814 3,030 3,409 Sundry Debtors 8,629 10,930 14,159 13,998 15,254 Cash and Bank 542 674 825 481 724 Loans and advances 1,845 1,805 2,014 2,044 2,293 Total assets 15,432 17,924 22,132 22,121 24,582 Shareholders' funds 4,911 5,760 5,978 6,930 8,059 Share capital 164 164 165 165 165 Reserves & surplus 4,747 5,597 5,849 6,801 7,930 Total Debt 3,690 4,767 7,567 6,067 6,567 Other liabilities 3,867 4,946 7,746 6,246 6,746 Curr Liab & prov 6,935 7,661 8,884 9,515 10,451 Current liabilities 6,653 7,218 8,408 8,945 9,777 Provisions 282 443 476 570 674 Total liabilities 10,520 12,165 16,155 15,191 16,524 Total equity & liabilities 15,432 17,924 22,132 22,121 24,582 Financial Ratios Y/E 31 Mar (Rs mn) FY10 FY11 FY12 UA FY13E FY14E EBITDA margin (%) 12.9 11.6 11.0 10.6 10.3 ROE (%) 24.7 18.7 15.8 17.3 17.6 ROCE (%) 30.1 26.5 22.3 21.5 22.8 Net margin (%) 5.6 4.2 3.5 3.8 4.0 Net Debt/Equity (x) 0.6 0.7 1.1 0.8 0.7 Inventory days 45 35 38 38 38 Receivable days 156 166 193 175 170 Payable days 97 94 93 88 84 24

Mar-06 Sep-06 Mar-07 Aug-07 Feb-08 Aug-08 Jan-09 Jul-09 Jan-10 Jun-10 Dec-10 Jun-11 Dec-11 May-12 Mar-06 Sep-06 Mar-07 Aug-07 Feb-08 Aug-08 Jan-09 Jul-09 Jan-10 Jun-10 Dec-10 Jun-11 Dec-11 May-12 Mar-06 Aug-06 Dec-06 May-07 Sep-07 Jan-08 Jun-08 Oct-08 Mar-09 Jul-09 Dec-09 Apr-10 Sep-10 Jan-11 May-11 Oct-11 Feb-12 Jul-12 PE Bands reflect KEC strength 180 160 140 120 100 80 60 40 20 0 KECI - 12m fwd PER (x) 450 400 350 300 250 200 150 100 50 0 KPP - 12m fwd PER (x) 350 300 250 200 150 100 50 0 JYS - 12m fwd PER (x) Price 3.3x 7x 12.9x 18.8x Price 4x 7x 16.4x 25.8x Price 3.2x 7.7x 13.5x 19.3x KECI trades at 7.5x 12-m fwd EPS, which is 75%/40% discount to its peak/average PE multiple. KECI s all time low PE multiple was 3.3x during Dec 2008. KECI is trading at 30%/90% premium to PE of KPP/JYS. KPP trades at 5.8x 12-m fwd EPS, which is 87%/63% discount to its peak/average PE multiple. KPP s all time low PE multiple was 4x during March 2009. KPP is trading at 23% discount/66% premium to PE of KECI/JYS respectively. JYS trades at 3.7x 12-m fwd EPS, which is 87%/66% discount to its peak/average PE multiple. JYS s all time low PE multiple was 3.2x during Oct 2008. JYS is trading at 59%/47% discount to KPP/KECI vs. historical discount of 25%-30%. 25

Appendix-1 KPP - Management Visit Note (Dated: 20 June, 2012) PGCIL orders continue to be focus area in transmission KPP s consolidated order book stands at Rs116 bn at end-fy12. Standalone and JMC s order book accounts for Rs61 bn/rs55 bn. The company has witnessed slowdown in order flow from SEBs in last 2-3 months due to halt in state capacity addition. This trend is not expected to reverse any time soon as fuel and funding issues prevail for state transmission companies. KPP is banking on PGCIL s orders mainly due to i) large capital expenditure planned ii) change in billing cycle from PGCIL has reduced number of players iii) on time payment. PGCIL, SEBs and private players contributes 26%/13%/4% to the current order book respectively. To counter domestic order slowdown, KPP continues to focus on overseas orders. The company sees an opportunity of US$40 bn from operations in 32 countries over next 5 Years. Overseas orders contribute 55% of the current order book. JMC and Shree Shubham Logistics to be growth contributor JMC projects (67% subsidiary) contributed 39% of consolidated revenue during FY12, reporting a growth of 50% YoY/30% YoY. JMC is executing 4 road BOOT projects, which are expected to get commissioned by FY15. Moreover, high margin F&B segment (50% of JMC s order book) remains the key focus area. On back of road BOOT projects and F&B order flow expectation, we expect JMC to grow with a revenue and PAT CAGR of 16%/21% over FY12-FY15E. SSLL (85% subsidiary, 4% FY12 revenue) has reported 10x growth in storage capacity over FY09-FY12. The company plans to add 0.4MMT storage capacity in next 2 Years to take the total storage capacity of 1.04MMT by end-fy14. The company is present in entire value chain of food grain logistics, which makes it a preferred player amongst central and state warehousing agencies. Intense competition leads to margin contraction On consolidated basis, KPP has reported sharp drop of 170bps YoY in EBITDA margin mainly due to increase in raw material prices, labor cost and intense competition above all during FY12. Margins were 10.9%/7.1% on standalone and JMC business respectively. Going forward, we don t expect significant change in competition intensity, which would lead margins to remain stagnant at current levels. We expect, consolidated margins at 9.3%/9.4% during FY13E/FY14E. 26

Appendix-2 KECI - Management Visit Note (Dated: 24 June, 2012) Overseas and Power Grid s orders to insulate order book KECI s consolidated order book stands at Rs86 bn at end-may 2012. On consolidated revenue, the current order book provides ~1.5 year visibility. KECI management also shares a similar industry view as other players. State and private sector order slowdown is evident, domestic order flow is only fueled by PGCIL s huge CAPEX plan. PGCIL is expected to end 12th FYP with a CAPEX of Rs1,000 bn (more than all India T&D spend during 11th FYP). Cumulative T&D CAPEX could range in between Rs170-180 bn for 12th FYP. KECI is hopeful of improvement in its market share in PGCIL s orders given the healthy competition post change in billing cycle norms from PGCIL. However, the company is very selective in state and private transmission utilities orders. As of now, KECI operates in 45 overseas countries, which accounts for ~65% of total order book. KECI sees huge opportunity in Americas, MENA and Central Asia T&D space, which provides confidence in maintaining overseas order book share. Number of players reduced margin improvement KECI reported consolidated EBITDA margin decline of 260bps YoY (50-100 bps more than its peers) mainly on account of i) intense competition ii) higher execution in low margin cable and telecom segments during FY12. KECI is confirming reduction in number of players in PGCIL s orders. However, margins are not expected to improve significantly as dried up ordering activity in other infrastructure space has increased healthy competition in Central transmission EPC tenders. Moreover, due to KECI s increased activity in water, railway and telecom space, margins are expected to remain suppressed and hover in a range of 8.0-8.5% during FY13. We expect, consolidated EBITDA margin of 8.1%/8.2% during FY13E/FY14E. Diversified business model enables growth Apart from Transmission EPC, KECI is also present in Power Systems, Cable, Railways, Telecom and Water segments. The diversified business model enables KECI to arrest decline in one segment. Order book in these all segments put together stands at ~30% of the total backlog. SAE Towers (100% subsidiary) reported 37% YoY growth in revenue with margin of ~13%. KECI is putting up a green-field cable manufacturing facility at Vadodara, which is expected to start operation during Q1FY13. Once operational, this facility could report a revenue of ~Rs3.5 bn at 100% utilization. Moreover, Railway, Water and Telecom businesses are also expected to be growth contributor with healthy orders in hand (4%, 3.8% and 2.7% of the total order book respectively). 27

Appendix-3 High Capacity Power Transmission Corridor High Capacity Power Transmission Corridor Rs bn HCPTC I Phase-I Generation Projects in Orissa 88 HCPTC II IPP projects in Jharkhand 57 HCPTC III IPP projects in Sikkim 13 HCPTC IV IPP projects in Chhattisgarh (Bilaspur complex) and Madhya Pradesh 12 HCPTC V IPP projects in Chhattisgarh 288 HCPTC VI IPP projects in Krishnapatnam Area, Andhra Pradesh 21 HCPTC VII IPP projects in Tuticorin Area, Tamil Nadu 24 HCPTC VIII IPP projects in Srikakulam Area, Andhra Pradesh 30 HCPTC IX IPP projects in Southern Region for transfer of power to other regions 48 Total 581 28

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