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At the time of independence in 1947, India had power generating capacity of a meager 1,362 MW. Power was not available in villages or rural areas, and only a few urban centers had electricity. Generation and distribution of power was carried out primarily by private utility companies. After independence, electricity was made subject to the concurrent jurisdiction of the state and central governments, although Parliament was given the ability to exercise pre-emptive power. The Electricity (Supply) Act, 1948 of India (the "Electricity Supply Act") created the institutional framework under which the industry was developed, which framework was not substantially modified until the recent passage of the Electricity Act, 2003 (the "EA 2003 "). The Supply Act led to the creation of the SEBs—state government agencies with the sole responsibility for generation, transmission and distribution of electricity within each state. Most states established SEBs; the smaller states and Union Territories, established Electricity Departments ("EDs") to manage and operate power systems. As of March 31, 2004, the SEBs own or control approximately 58% of India's total generating capacity and have substantial control of most of the distribution assets. The Ministry of Power (the “MoP”) and the Ministry of Non-Conventional Energy Sources of the Government are primarily responsible for the development of the power industry in the country. The MoP is responsible for overseeing India's power industry. Its duties include perspective planning, policy formulation, monitoring the implementation of power projects, training and manpower development and the administration and enactment of legislation in regard to thermal and hydro power generation, transmission and distribution. In the mid 1970s, it was recognized that relying solely on the SEBs for power development was leading to power shortages and large inter-state imbalances, particularly in light of the uneven distribution of coal and hydroelectric resources throughout the country. To supplement the efforts of the states, the central Government increased its role in the generation and transmission of power. NTPC and National Hydro Power Corporation, Ltd. ("NHPC") were created in 1975 by the central Government to establish thermal and hydro generating plants and to install associated interregional transmission systems. In the same year, the CEA was established in its present form to develop a uniform national power policy. Additional power generating companies were established later. In 1992, the central entity known today as the Power Grid Corporation of India Limited ("POWERGRID") was established to construct, operate and maintain inter-state and interregional transmission systems. These entities are collectively referred to as the Central Power Sector Utilities ("CPSUs") and are directly accountable to the MoP. The other companies under the direct control of the MoP are the Power Finance Corporation (“PFC”) and the Rural Electrification Corporation. The Power Trading Corporation of India Limited ("PTC") was formed in 1999 to allow surplus power supplies to be efficiently traded to utilities with deficit power supplies. PTC is promoted by NTPC, POWERGRID, NHPC, and PFC.

Recent Developments to supplement public sector investment, the Government took steps in 1991 to attract private investment in the power industry. The Government permitted 100% foreign ownership of power generating assets and provided assured returns, a five-year tax holiday, low equity requirements, and for some private generators, counter-guarantees against non-payment of dues by SEBs. However, these reforms still did not address the poor financial health of the SEBs, and power shortages persisted.

Transmission and distribution ("T&D") losses were especially high, due to inadequate metering, obsolete equipment, and theft. T&D losses were estimated to be 32.9% on average for the nation in fiscal 2001. The commercial losses of the SEBs were Rs. 253 billion in fiscal 2001, an amount equivalent to over 1% of India's GDP at the time. By March 2001, overdue payments by the SEBs to the CPSUs, including interest and surcharges, amounted to Rs. 278 billion. The states to take concrete measures to restructure their power operations, the Government introduced the Accelerated Power Development and Reforms Program ("APDRP") in fiscal 2001. The APDRP aims to bring down T&D losses to 10% through various central, state and local level initiatives and to improve the performance of generating stations through renovation and modernization. In order to improve the financial health of the SEBs, the Government implemented the Scheme for One Time Settlement of Outstanding Dues ( the "One Time Settlement"), which settled the outstanding dues of the SEBs payable to the CPSUs, and set up a system to facilitate the full payment of subsequent billings. Most recently, the EA 2003 was adopted, which consolidated all existing laws governing the industry, created a program for restructuring the SEBs, and introduced greater competition and access into certain segments of the industry.

The Electricity Act, 2003

The Electricity Act 2003 was approved by the Indian Parliament in May 2003 and notified with effect from June 2003. The EA 2003 is a central unified legislation and seeks to replace the multiple legislations that governed the Indian electricity sector. The EA 2003 consolidates all the existing legislations and provides for further material reforms in the sector. The most significant reform initiative under the EA 2003 is the move towards a multi buyer, multi seller system as opposed to the current structure which permits only a single buyer to purchase power from generators. In addition, under the EA 2003, the regulatory regime is more flexible, has a multi year approach and allows regulatory commission greater freedom in determining tariffs, without being constrained by rate-of-return regulations. Under the EA 2003, the penal provisions for dishonest use of electricity have been tightened and special courts have been envisaged for speedy dispensation of justice.

In India, control over the development of the power industry is shared between the Central and the State Governments. The Ministry of Power is the highest authority governing the power industry in India. The CEA, a statutory organization constituted under the Electricity Supply Act, is the technical branch of the Ministry of Power assisting in technical, financial and economic matters relating to the electricity industry.

The CEA is responsible for giving concurrence to schemes involving capital expenditure beyond a certain limit as fixed by the government from time to time, and it is also responsible for the development of a sound, adequate and uniform power policy in relation to the control and utilization of national power resources. The

Central Electricity Regulatory Commission constituted under the Electricity Regulatory Commissions Act 1998 is an independent statutory body with quasi-judicial powers. Its main functions include the formulation of policy and the framing of guidelines with regard to electricity tariffs. Several states have set up State Electricity Regulatory Commissions (SERCs) and others are in the process of setting them up. The SERCs are engaged in regulating the purchase, distribution, supply and utilization of electricity, tariff and charges payable, as well as the quality of service. State Governments have set up State Electricity Boards at the State level, which are responsible for ensuring that the supply, transmission and distribution of electricity in such states is done in the most economical and efficient manner. These State Electricity Boards are required to coordinate with power generating companies, as well as the government entities that control the relevant power grids. Some States have amalgamated their respective State Electricity Boards to form Regional Electricity Boards, to ensure that the electricity supply, transmission and distribution policies are consistently applied. Private sector companies operating in the electricity supply, transmission and distribution industry report to the Ministry of Power, as well as their respective State Electricity Boards and their State Electricity Regulatory Commissions.

The power industry in India has been characterized by peak power and energy shortages. The shortages are estimated that around 7% of the connected average capacity and around 11% of the peak requirements. Although power generation capacity has increased substantially in recent years, it has not kept pace with the growth in demand or the growth of the economy generally. According to the United Nations, India has one of the lowest electricity consumption levels in the world, at 355 units per capita in 2000, due in part to unreliable supply and inadequate distribution networks. This contrasts with 827 units per capita in China, 1,878 units per capita in Brazil and 12,331 units per capita in the United States, in 2000. India’s generation capacity is expected to grow from the current levels of about 120 GW to about 225-250 GW by 2017 based on the economic growth and the increasing living standard of Indians.  In such a scenario the power generating companies and other related industries are assured of continued growth in demand for their products and services.

The company

G.V. Krishna Reddy, the Chairman & Managing Director of GVKPIL, is a first generation entrepreneur who established the business four decades ago. The Company was incorporated in the National Capital Territory of Delhi on December 2, 1994 as Jegurupadu Operating & Maintenance Company, as firm. It was converted to a company with limited liability and consequently the name was changed to Jegurupadu Operating & Maintenance Company Private Limited on April 20, 2005. Subsequently, our Company was converted from a private limited company to a public limited company on May 19, 2005 and the name was changed to Jegurupadu Operating & Maintenance Company Limited. Thereafter, the name of the Company was changed to GVK Power & Infrastructure Limited on July 13, 2005.

The GVK has interests in businesses including power, roads, urban infrastructure, bio-science, hotels and manufacturing.  In 2006 GVK has consolidated its infrastructure assets under one company making it an integrated infrastructure player. As part of the consolidation, all the infrastructure assets in Power, Airport, Road, and Mining will now come under one umbrella of GVK Power & Infrastructure Limited (GVKPIL).

This consolidation has bought Mumbai International Airport Pvt. Ltd. (MIAL) which operates India’s busiest airport, the Chhatrapati Shivaji International Airport in Mumbai and GVK Jaipur Expressway Pvt. Ltd. which operates the six-lane toll road project on the Golden Quadrilateral will come under GVKPIL. It has enabled unlocking of value in operating assets and eliminate the need for multiple listing by group companies GVKPIL presently owns 53.96% in GVK Industries Limited which operates the 216 MW Jegurupadu Phase I gas based power plant and the 220 MW Jegurupadu Phase II gas based project which is ready for commercial operations. GVKPIL also owns 44.97% (to be increased to 51% in due course) in Gautami Power (464 MW Gas based power plant) which is ready for commissioning. The firms that were merged with the GVKPIL are:

GVK Airport Developers Pvt. Ltd.

GVK Airport Developers is the holding company of GVK Airport Holding which holds equity stake in Mumbai International Airport Pvt. Limited. MIAL has entered into Operating Maintaining and Development Agreement with Airport Authority of India in April 2006 for developing operating and maintaining the Mumbai airport. MIAL has been operating the Mumbai airport with effect from 3rd May 2006.

Alaknanda Hydro Power Company Limited

Alakananda is developing a 330 MW Hydropower Project in the State of Uttaranchal. Currently, the project is under the construction phase and the company has signed a PPA with the Uttar Pradesh Power Corporation Limited.

GVK Power (Goindwal Sahib) Limited

Goindwal Sahib is developing a 600 MW coal based Thermal Power Plant at Goindwal Sahib, in Punjab. The Company has initialed the draft Power Purchase Agreement with Punjab State Electricity Board ("PSEB") in December 2006.

Goriganga Hydro Power Private Limited

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

GVK Jaipur Expressway Private Limited (GJEL)

GJEL was incorporated for designing, engineering, financing, constructing, operating, maintaining and widening the 90.385 km existing 2 lane project highway to 6 lanes on the Jaipur - Kishangarh section of the National Highway No. 8 in the State of Rajasthan by entering into a concession agreement with NHAI for a period of 20 years including construction period.

GVK Coal (Tokisud) Company Private Limited

Tokisud was incorporated to undertake coal mining activity. Tokisud will supply its entire output to GVK Power (Goindwal Sahib) Limited for its exclusive consumption.

With this consolidation GVK is company that has Rs. 50 Billion in terms assets and is in the process of executing projects worth Rs. 150 billion backed by 7,000 professionals.

Past Financials

The key financial indicators of the past performance is given in the following table

The high equity has benefited the company to save on interest but with most projects either under implementation or partial operation the results do not reflect the true potential of the company. There has refreshing growth in revenue and this trend is likely to continue.

What the investors can expect?

The company with its multitude of projects has good exposure to road building, air ports and powers the three sectors which can underpin its growth in the ensuing years. This is a long buy. The charts suggest peaking of prices at this stage with the rally falling of from the channel it was climbing. It sets up a good opportunity for near term traders to initiate sell as the first leg of transaction. The long term investors can look at the stock when the fall takes it to Rs. 38 -40 region and definitely at Rs. 30 level.