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Eredene Capital Transforming Indian Infrastructure

Eredene Capital PLC (‘Eredene’) is an investment company

specialising primarily in infrastructure in India.

Eredene continues its commitment to Indian infrastructure through its

most recent investments in a new container terminal and a port services

company.

Eredene‟s investments are targeted at India‟s need for the modern

infrastructure necessary in a fast growing and ever more sophisticated

economy.

The company now has investments in three critical areas:

o Ports and port related activities. The company‟s biggest

commitment to date is as part of a consortium to develop and

operate the new container terminal at Ennore.

o Container freight stations and inland container depots.

Eredene has revenue producing investments in Chennai and

Pipavav, and is building on these with follow-on investments

in Ennore and Baroda.

o Logistics parks and third party logistics. Investments in

Haldia, Kalinganagar and near Delhi.

In addition there is a low cost housing development near Mumbai and a

small office development in Bangalore.

Recorded net asset value is 23p per share. Our less conservative

estimates suggest a potential medium term value of 30p per share. We

would expect to return to these estimates at a later stage, probably with

higher numbers as investments achieve greater maturity.

Net Asset Value per share: 23.0p Share Price Target: 30p

7 September 2010

Company Details

EPIC ERE

Share price p 20

52 week High/Low p 21 / 15

Issued share cap m 280.2

Market cap £m 56.0

Major Shareholders

Caledonia & Cayzer Trust 24.47%

Ruffer LLP 23.67%

Henderson and related 10.05%

Rebelco S.A 10.22%

Ornaisons Foundation 7.26%

Share Price, p

14

15

16

17

18

19

20

21

22

23

Sep/09 Dec/09 Mar/10 Jun/10

Source: ADVFN

All our research is available at

www.equitydevelopment.co.uk

Equity Development contacts

Andy Edmond 0207 065 2691 [email protected]

Conor Fahy 0207 065 2690 [email protected]

http://www.equitydevelopment.co.uk/

Eredene Capital 7 September 2010

2 www.equitydevelopment.co.uk

CONTENTS

1:INTRODUCTION 3

Background 3

Eredene now 3

India as an investment target 3

Infrastructure the key 4

2:POTENTIAL VALUE 7

3:LATEST INVESTMENTS 11

Ennore container terminal 11

Ocean Sparkle („OSL‟) 13

4:EXISTING INVESTMENTS 16

CONTAINER LOGISTICS 16

Sattva CFS & Logistics („Sattva Vichoor‟) 16

Sattva Conware CFS 19

Contrans Logistic 20

Pipavav 21

Baroda 22

LOGISTICS PARKS 25

Apeejay Infra-Logistics („Infra-Logistics‟) 25

Haldia 25

Kalinganagar 27

THIRD PARTY LOGISTICS (‘3PL’) 29

MJ Logistic („MJLS‟) 29

LOW COST HOUSING 33

The Matheran project 33

Matheran Realty 35

Gopi Resorts 36

OFFICE DEVELOPMENT 38

Sribha Infrastructure Solutions 38

5:MANAGEMENT 40

6:PARTNERS IN INDIA 42

7 September 2010 Eredene Capital

www.equitydevelopment.co.uk 3

1: INTRODUCTION

Background

Eredene began to take shape when it raised a gross £57m in April 2006 for

investment in India.

Having made an initial three investments in Indian real estate, the board

determined that burgeoning real estate prices in India no longer offered returns

commensurate with the risk involved, and decided to refine its strategy to

concentrate on Indian infrastructure.

Consequently, in the first half of 2007, Eredene became a self-managed

investment company and the first three real estate developments were sold.

These realised £9.75m against equity invested of £8.17m, resulting in an IRR of

34.0%. Eredene entered H2 2007 with cash of £57.7m and embarked on the

building of its infrastructure portfolio.

Eredene now

All of this original capital has now been invested or conditionally allocated to a

series of investments primarily in infrastructure logistics.

Two investments are regarded as non-core - low cost housing and a small office

project. With the exception of these, all investments are related in one form or

another to containers and port traffic, and consist of Ports and Port Services,

Third Party Logistics („3PL‟), Container Freight Stations („CFS‟), Inland Container

Depots („ICD‟) and Logistics Parks near or connected to port facilities.

A report by Jones Lang1 identified Eredene as the most significant

investor (by number of investments) in Indian logistics.

The most recent investments continue and intensify the port-related theme – a

new container terminal at Ennore Port (Eredene‟s biggest commitment to date)

and a port services company.

India as an investment target

India is the world‟s fourth largest economy, as measured by purchasing power

parity exchange rates („PPP‟). It is also one of the fastest growing, pipped to the

post only by China.

It is the second most populous country (1.2bn), after China, and is forecast to

have more people than China by 2025 or earlier.

The country is characterised by a large emerging middle class, highly educated

and aspirational. It also boasts the world‟s largest English speaking population,

the lingua franca of the modern business world.

1 ‘Retail Distribution Warehousing – Empowering the Indian retail revolution’, by Jones Lang LaSalle® Meghraj, 11 February 2009



Between 2004 and 2008 GDP grew at an average 8.8% pa, but slipped to 6.8% in

2009 as the world recession bit. The dip was short-lived: in Q2 2010 growth was

back up to 8.8%, with industrial output up by 12%.

Infrastructure the Key

India is seriously underinvested in transport (road, rail, ports, air traffic) as well

as other aspects of infrastructure.

Bureaucratic inefficiencies and corruption had been major causes of low public

sector investment in the country‟s infrastructure. The new century, however, saw

a determined effort to redress the balance, with a move to a market led

economy. Many previously public sectors are now open to private investment,

frequently through foreign direct investment („FDI‟).

Eredene‟s investments are targeted at four principal areas, all inter-related:

Ports and port activities

Container logistics

Logistics parks

Third party logistics („3PL‟)

Ports and port activities

Most ports in India are publicly owned, but private participation is becoming more

common, either in separate ownership of new ports or of elements of existing

ports (such as the new container terminal at Ennore).

Two ports are now quoted companies on the BSE and NSE – Mundra and Pipavav.

The World Bank has said: ‘…the sector has not been able to keep pace with rising

demand and is proving to be a drag on the economy … India's ports need to

significantly ramp up their capacity and efficiency to meet this surging demand.’2

Ports are clearly a major target for expansion.

Container logistics

Container Freight Stations („CFS‟) and Inland Container Depots („ICD‟) are closely

related to port activity, but more specifically to the fastest growing part of the

sector.

The following chart illustrates the strength of the container market in India:

2 World Bank India web site: www.worldbank.org.in - ‘Transportation: India’

http://www.worldbank.org.in/



Container Market

Source: India Ports Association

Traffic dipped in FT 2008/09, but swiftly recovered and in the April to July 2010

period was 12% ahead of the previous year.

A CFS, as distinct from an ICD, is generally an off-dock facility close to a port,

helping to de-congest the port by shifting cargo and customs related activities

outside the port itself. It provides facilities for cross-border trade in the close

vicinity of production/consumption centres in its hinterland, with linkages to

gateway ports.

Facilities include warehousing, short and long term storage, stuffing and

unloading etc.

An ICD performs essentially the same functions as a CFS, except that it is located

inland. Whereas a CFS deals with imports and exports at the point of entry/exit to

or from the country, an ICD will mostly deal with internal traffic, and will normally

be located close to a major distribution hub with access to road and rail arterial

systems.

Logistics parks and third party logistics (‘3PL’)

These are a relatively new feature of the Indian economy, and take us a step

further along the distribution chain.

Inland distribution is a key area of concern for some of the large companies short

of warehousing facilities. Although export business may well be in bulk, inland

distribution frequently is not, because of the fragmentation of Indian industry and

commerce: individual orders are very often of a low ticket nature.

It is also a feature of Indian businesses that most business is concluded around

the end of the month, resulting in a marked „bunching‟ of orders. This is a

problem for large suppliers, who have to build up stocks throughout the month

and execute delivery in a short timeframe after that. They need external

warehousing and logistics.



Both logistics parks and 3PLs supply this. They also, in the case of a 3PL, provide

cold storage for the burgeoning retail food sector, and computerised handling

services for its clients, as well as on-site office facilities. A logistics park will

supply some or all of this, and also areas for external operators to house their

own office facilities and operate hotels.



2: POTENTIAL VALUE

Eredene is essentially a long term investor in Indian infrastructure. It has to date

made twelve investments through ten companies:

Timing of investments

Project Investment announced

Matheran Realty Jul-2007

Sattva Vichoor Sep-2007

Contrans Logistic: Pipavav Oct-2007

Apeejay Infralogistics: Haldia Nov-2007

MJ Logistic Dec-2007

Gopi Resorts Apr-2008

Apeejay Infralogistics: Kalinganagar May-2008

Contrans Logistic: Baroda Aug-2008

Sribha 2008

Sattva Conware Oct-2008

Ennore consortium * Jun-2010

Ocean Sparkle Jul-2010

* Date of project announcement

Source: Eredene RNS announcements

Eredene‟s investments are shown at Fair Value in its accounts calculated

according to the International Private Equity and Venture Capital Guidelines

(„IPEV‟)3, which is defined as the price at which an orderly transaction would take

place between market participants at the Reporting Date. Eredene‟s IPEV

valuations are carried out by Grant Thornton.

The sale of an investment is its determinant of value, whether an outright sale or

by flotation on the relevant stock market – an outright sale being the final

determinant.

Not being a private equity fund, Eredene has no fixed limitation on its life, and is

not subject to a private equity requirement to exit from investments on an

inflexible timescale. It can, however, be expected to sell investments at times of

its choosing and, as a continuing company, reinvest the proceeds.

The company‟s share price on AIM is of course related to its performance in terms

of Sterling. However, the value and potential value of its investments must have

reference to values pertaining in India.

Eredene does not fit easily into any of the Bombay Stock Exchange‟s („BSE‟)

industrial sub-sectors, or those of the National Stock Exchange („NSE‟). The

company encompasses a number of different infrastructure projects – ports, port

services, CFSs and ICDs, logistics parks, office development and low cost housing

– which cross disciplines yet form a consistent whole.

At the time of writing, the average p/e ratio for the BSE 500 is 21.8x.

3 The International Private Equity and Venture Capital Valuation Guidelines were developed by the Association Française des Investisseurs en Capital (AFIC), the British Venture Capital Association (BVCA) and the European Private Equity and Venture Capital Association (EVCA) and were launched in March 2005 to reflect the need for greater comparability across the industry and for consistency with IFRS and US GAAP accounting principles.



This is a rather demanding rating, reflecting the confidence of the market in the

growth potential of the country. We are concerned, however, with companies

smaller than the average, and have looked for direct comparators.

Eredene‟s primary investments are in logistics and in ports and port related

activities, but in fact they are all in broadly the same areas of activity.

Comparators are few: there are only two quoted port companies, and few

logistics ones.

Let us start with logistics. Our comparators are as follows:

Logistics comparators

Ticker Issued Share price Mkt Cap EPS PER

BSE Shares m INR 1 £m INR

AllCargo Global Logistics ALLCARGO 130.5 168.90 301.6 8.4 20.2

Arshiya International ARSHIYA 13.4 284.70 52.1 2.9 96.8

Container Corporation of India CONCOR 130.0 1,317.95 2,344.2 59.3 22.2

Gateway Distriparks GDL 108.0 108.85 160.8 7.0 15.7

Sical Logistics SICAL 39.5 68.20 36.9 8.7 7.9

Unweighted average of all 32.6

Average of selection 2 16.5

1 At 25 August 2010, 2 Arshiya eliminated

Source: BSE, NSE, company websites

This gives us an average p/e ratio on trailing twelve months earnings, which we

have applied where appropriate, discounting our forward estimates.

The two port companies are Mundra and Pipavav, both located in Gujarat state,

and radically dissimilar in size:

Ports comparators

Ticker Issued Shares Share price Mkt Cap BV Turnover Price/BV Price/T'over

BSE m INR 1 £m £m £m Factor x Factor x

Mundra 2 MUNDRAPOR 401 815 4,469 477 191 9.4 23.5

Pipavav 3 GPPL 424 46 267 102 28 9.4 9.4

1 At 25 August 2010 2 Mundra Port & Special Economic Zone Ltd 3 Gujarat Pipavav Port Ltd. Figures are estimates based on Red Herring and issue price.

Source: BSE, NSE, company websites

Pipavav Port („GPPL‟) is a very recent entrant to the market, and has been

lossmaking to date. No earnings comparison. Mundra is not just very much

bigger, but the numbers hardly form a basis for comparison. So, for the new

investment in the Ennore container terminal we have relied on our DCF model.

Our models of the individual investments are mostly based on constant money.

This may be unduly conservative: it can be expected that initial rates charged to

clients by new ventures will inflate at a higher rate than costs as capacity is filled

and the businesses mature. This could particularly apply to ventures such as the

Baroda ICD.



The reasoning behind our valuation of the individual investments is covered later

in this report. Values are summarised as follows:

Valuation summary

Cost IPEV Allocated Total ED potential

end March 2010 Valn* Cost Value

£m £m £m £m £m

Ennore consortium 0.0 0.0 23.0 23.0 29.0

Ocean Sparkle 7.3 7.3 0.0 7.3 10.7

Sattva Vichoor 0.9 3.2 0.0 0.9 5.0

Sattva Conware 3.5 3.5 1.5 5.0 5.0

Contrans 5.4 6.9 2.4 7.8 9.9

Apeejay InfraLogistics 2.2 4.5 5.7 7.9 13.0

MJ Logistic 7.9 7.9 3.1 11.0 11.0

Matheran Realty 10.1 8.1 0.0 10.1 8.1

Gopi Resorts 2.5 3.2 0.0 2.5 3.2

Sribha 2.1 0.5 0.0 2.1 0.5

Totals 42.0 45.0 35.7 77.6 100.4

* Investment cost assumed where not otherwise indicated.

Source: Eredene financial statements and ED estimates

IPEV values are shown in comparison with investment cost to date: our „ED

potential value‟ is shown against total investment cost, including amounts yet to

be invested.

IPEV values are calculated according to strict guidelines, and by their nature tend

to be conservative. Our „ED potential value‟ is not a contradiction of the IPEV

numbers, but is intended to be a guide to possible values if investments go to

plan. By the very nature of things, any investment company of this kind will have

a few failures: equally, it can expect one or two to perform in excess of

expectations. So our „potential value‟ should be treated with some caution.

We have included the two investments made post balance sheet, so they are not

included in the IPEV valuations. Excluding their increase in value from our

numbers would mean that we would show an excess over cost of 15% compared

with the IPEV figure of 6%.

Both figures are affected by poor results from Matheran Realty and Sribha.

Net asset values are calculated as follows:



NAV Calculations

At end March 2010 £m

Property etc * 16.7

Intangibles and other 1.2

17.9

Investments at valuation 26.3

44.3

Cash & equivalent 27.6

Other net current liabilities (0.2)

71.7

Borrowings * (5.8)

Minority interest * (1.6)

Equity shareholders' funds 64.4

Net asset value per share p 23.0

Shareholders' funds 64.4

Excess of ED estimates over IPEV 18.6

82.9

Potential NAV per share 30.0

* These figures relate almost entirely to MJ Logistic and Sattva Conware, which are consolidated as subsidiaries

Source: Eredene financial statements and ED estimates

Based on this, we set a medium term price target of 30p per share.



3: LATEST INVESTMENTS

Ennore container terminal

Investment in Container terminal

Start: * Jun-2010

£m

Invested to date 0.0

Allocated 23.0

Totals 23.0

Ownership Current Ultimate

22.00% 22.00%

* Date of project award. Agreement was signed on 13 August 2010.

The consortium of which Eredene forms a part was successful in its bid for the

Build-Operate-Transfer („BOT‟) contract for the new container terminal in Ennore

in Tamil Nadu state. The project has been named Bay of Bengal Gateway

Terminal („BBGT‟).

Project cost is £207m (INR15.2bn). Eredene‟s equity investment (over a 48

month period) is currently forecast at about £23m (INR1.7bn).

Ennore port is about 24km from

Chennai port, developed as a

greenfield project to ease

congestion at Chennai. It was

commissioned in 2001, and

declared one of the 13 Major Ports

under the Indian Ports Act. It has

been consistently profitable since

its inception.

The new container terminal is only part of a massive expansion of Ennore Port,

which is designed to turn it into a major international port rivalling Chennai.

Other projects include the construction of an iron ore terminal and a new four

lane road connecting with NH 5.

Consortium partners

Eredene‟s partners in the consortium are:

Grup Marítim TCB SL (‘TCB’) (26%). TCB is Spain‟s leading terminal

operator with five in mainland Spain and two in the Canaries, as well as a

further six overseas. Ennore is its first venture in India. Total installed capacity

is about 4.5 million TEUs4.

4 TEU = Twenty foot Equivalent Unit, the standard industry measurement.



Obrascón Huarte Lain SA (26%). The OHL Group is one of Spain's leading

construction, concession, environmental development, and industrial groups.

The group has a presence in 20 countries across four continents, and can be

expected to provide services in the construction of the port.

Lanco Infratech Ltd (26%). Lanco Infratech is a major Indian

conglomerate, capitalised at about £2bn. Divisions include construction,

power, EPC, infrastructure, property development, and renewables.

Eredene‟s 22% stake is significant. Members with 26% or more are „locked in‟,

but Eredene can exit at the time of its choosing.

Tendering under BOT model

The BOT model has achieved widespread use in India. Designed for all sorts of

outsourcing such as IT projects etc, it is most prominent in Government sourced

infrastructure projects such as road, rail and ports which are ultimately owned by

public sector undertakings („PSUs‟). It is a type of arrangement in which the

private sector builds an infrastructure project, operates it and eventually transfers

ownership of the project to the government, having earned a return on its

investment.

In the case of BBGT the commissioning authority is the PSU Ennore Port Limited

(„EPL‟). The BOT is for a term of 30 years from 13 August 2010. With construction

planned to take 30 months from start in April 2011, the terminal is expected to

be commissioned in Q4 2013/14 i.e. Q1 of calendar 2014.

The tender process began in 2008 and attracted 22 applications, which were later

whittled to a short list of six. In addition to Eredene‟s consortium, the short list

consisted of:

APM Terminals (Maersk)

Consortium led by Gammon Infrastructure

Consortium led by Nippon Yusen Kabushiki Kaisha

Consortium of Larsen & Toubro and John Keells Holdings

Consortium led by Sterlite Industries (India)

Final bidding was on a simple single measure, and was defined in terms of royalty

as a percentage of gross terminal revenues.

The bidding process took two and a half years.

Capacity

The terminal will have a continuous quay length of 1,000 metres, with water

depth of 16 metres alongside. The facilities will be capable of handling three

container vessels of up to 8,000 TEUs simultaneously.

EPL itself states capacity at 1.5m TEUs pa. This is a very conservative estimate:

actual capacity is likely to be more of the order of 2.4m TEUs. It is expected that

this capacity will be taken up over a period of a few years, with full utilisation

likely to be achieved six years after commissioning.



Valuation

BBGT is a long term project (30 years), and is not likely to get into profit until the

fifth year post-commissioning (FY 2017/18), although it should be cash positive

the year before that. Full capacity utilisation will not be reached until FY 2019/20,

when we should be looking at net profit of about £34m (INR2.4bn) after royalties,

tax and all other charges. Eredene‟s 22% share of this would be about £7.5m

(INR500m), a p/e ratio of 3x against investment cost.

However, this is looking ten years out, and a market rating approach is not

appropriate. We have relied instead on our DCF model.

This has to take into account differential rates of inflation in revenues and costs –

tariffs are controlled by the Ennore Port Authority, with rate increases limited to

60% of the rise in the Wholesale Price Index movement – so we have used a

discount rate of 12% rather than the 10% we have used in constant money

models. This produces an NPV of £29m.

Total cost: £23m

Potential value: £29m

Ocean Sparkle (‘OSL’)

OSL is Eredene‟s first investment on a mature company, and marks a shift in

attitude towards its investment in Indian infrastructure.

* One of the existing investors (IFC) holds its

interest through preference shares. On conversion of these, Eredene’s effective interest

would fall to 7.66%.

The opportunity arose because one of the backers of the company (Swiss

Technology Venture Capital Fund Private Ltd) is nearing the end of its fund life

and needed to divest. Eredene has acquired from it its 8.22% holding in OSL at a

cost of about £7.3m (INR 510m). Other investors in OSL include the World Bank‟s

International Finance Corporation („IFC‟), and two Indian funds – India Equity

Partners Fund („IEP‟) and IIH.

Swiss Technology‟s planned exit was to have occurred in 2007-08 via an IPO, but

the looming world financial crisis put paid to this. With markets in somewhat

better health we would expect an IPO to be again a real possibility.

Investment in OSL

Start: Jul-2010

£m


Allocated 0.0

Totals 7.3

Ownership * Current Ultimate

8.22% 7.66%



Eredene‟s latest investment could become its first disposal, although we think

Eredene might hesitate before taking a profit too soon.

The price Eredene paid values the company at about £89m: the previously

planned IPO was at a valuation of £110m. The IPO, as and when it occurs, is

likely to be at the same valuation, or higher. This would imply a short term gain

to Eredene.

The business

OSL was founded in 1995, and is India‟s leading port operation and marine

services company, providing a full range of services to incoming and departing

ships. Services include pilotage, anchoring and berthing. The company also

undertakes dredging contracts. The fleet of 82 vessels comprises:

59 tugs

Five dredgers

Five barges

Five mooring boats, and

Eight pilot launches

OSL provides services to 18 ports across India:

Clients served by OSL

West Coast East Coast

Kandla Port Trust Paradip Port Trust

Reliance Port and Terminals Limited, Jamnagar Kakinada Sea Ports Limited, Kakinada

Gujarat Pipavav Port Limited Chemplast Sanmar Limited

Dahej Harbour and Infrastructure Limited, Dahej Krishnapatnam Port company Limited

Gujarat Chemical Port Terminal Company Limited, Dahej Chennai Petroleum Corporation Limited

Petronet LNG Ltd, Dahej * Ennore Port Ltd , Ennore *

Reliance Industries Limited, Hazira Karaikal Port Private Limited

Jawaharlal Nehru Port Trust

Mormugao Port Trust, Goa *

Goa Maritime Private Limited *

Cochin Port Trust

*JVs with PSA Marine (Pte) Limited, Singapore

Company

Joint ventures

There are three joint ventures with PSA Marine (subsidiary of PSA International),

which has a widespread presence in pilotage and towage throughout the Far East.

JVs with PSA Marine include operations for Mormugao Port Trust in Goa, Gujarat

Maritime, the first LNG terminal in India at Dahej in Gujarat and a twelve year

contract for port services at Ennore Port itself.



Valuation

OSL is profitable and dividend-paying. Results for the last six financial years are

summarised as follows:

OSL - abbreviated P&L

Year to end March 2005 2006 2007 2008 2009 2010

In rupees INR m INR m INR m INR m INR m INR m

Total revenue * 736 772 1,042 1,748 1,836 2,499

Profit before tax 278 242 320 513 364 599

Net after tax 280 227 274 495 342 506

Sterling equivalent £m £m £m £m £m £m

Total revenue * 10.56 11.07 14.95 25.07 26.33 35.13

Profit before tax 3.98 3.48 4.58 7.36 5.22 8.59

Net after tax 4.02 3.25 3.93 7.10 4.91 7.26

* Including JV income

Source: Eredene

FY 2008/09 results show the effects of the world recession, with revenue barely

growing and profit at the pre-tax level dropping by just over 30%. Eredene‟s

acquisition from Swiss Technology was based on those results, and represented a

p/e ratio of 18x at the acquisition price.

There was, however, a sharp rebound in FY 2009/10. Revenue jumped by 36%

and pre-tax by 65%.

Eredene is now sitting on an investment with an historic p/e ratio of 13x, with

substantial growth to come from Indian port revenues.

If we apply our benchmark logistics companies‟ p/e ratio of 16.5x we arrive at a

value of £120m for the company as a whole, which is comfortably above the

£110m assumed for the IPO. It is also close to our NPV calculation. If, however,

we apply the more broadly based BSE500 p/e ratio of 21.8x, value jumps to

£158m. OSL is a well established growth company, and its value should have

reference to the market average. We have, however, taken a straight line

between the two numbers.

Total cost: £7.3m

Potential value: £10.7m



4: EXISTING INVESTMENTS

In general, Eredene‟s investments have progressed well, but there have been

some blips.

Delays appear to be normal in Indian business, and can have many different

causes. One of these is inevitably the bureaucratic process, particularly in the

area of planning permissions – although it must be said that there have been vast

improvements there.

Another is the time involved in land accumulation for greenfield projects.

Frequently agricultural land has to be acquired in individual lots or parcels and

then converted to industrial or other purposes. Conversion of use appears to be

quite rapid, but the real problem is time spent in accumulation.

Some Eredene projects have incurred delays – the exceptions being Sattva and

Contrans, where Eredene‟s partners have shown admirable skill in pushing their

projects through.

Most serious have been the delays in Matheran and MJ Logistic, both discussed

later. Developments at Matheran have been outside the company‟s control, but

MJ Logistic, having got off to what appeared to be an excellent start, seemed to

vegetate for a year. We speculate that the complexities involved in new

computerised systems and cold storage may be the root cause, but judgment on

the project must be suspended until results begin to show through.

CONTAINER LOGISTICS

Sattva CFS & Logistics (‘Sattva Vichoor’)

Investment in Sattva Vichoor

Start: Sep-2007

£m


Allocated 0

Totals 0.9


49.00% 49.00%

Company

Sattva Vichoor initially served two purposes: as Eredene‟s first investment in a

CFS it provided exposure to the sector with a very low financial commitment, and

also provided a foothold in the Chennai region with its rapidly expanding port

sector.

Another major advantage was the partnership forged with the successful Sattva

Business Group, which already operated a CFS in Chennai and has extensive

business connections in the area and relationships with shipping lines. For

information on the Sattva Business Group, see Appendix 2.



It is Eredene‟s smallest investment, but has proved to be by far their most

successful to date.

Business plan

Sattva Business Group had already acquired a 15 acre site at Vichoor, with plans

to expand it to 30 acres. With Eredene‟s investment the site has grown to 26

acres and the buildings and other facilities associated with CFS have been put in

place.

Development cost at Vichoor was INR23m (£5.3m), financed by a total equity

injection of INR141m (£1.76m) – 51% from Sattva Business Group, 49% by

Eredene - and debt of INR282m (£3.54m), a gearing ratio of 2.0x.

Sattva Vichoor‟s business is drawn

from the Chennai port area but,

situated just north of Chennai, it is

actually closer to the new Ennore port

than Chennai itself (12km v. 17km).

It is therefore well placed to handle

traffic from both ports: Chennai

handled 1.2m TEUs in 2009/10, with

plans to expand capacity

substantially, while the new container

terminal at Ennore (to be developed by Eredene‟s consortium) will have a

capacity of 2.4m TEUs.

Development of the CFS is planned to take place in three phases as container

traffic grows. Capacity is planned to reach 120,000 TEUs by 2015:

Sattva development phases

Time period Capacity added

TEU

April 2007 to March 2010 40,000

April 2010 to March 2012 40,000

2012 to 2015 40,000

Total capacity 120,000

Source: Eredene

The CFS provides a full range of services - bonded warehousing for exports and

imports, secured and paved stacking areas for containers, a facility for assembly

from kit parts, stacking cranes, computer-driven tracking systems and prime

office facilities.

Performance against business plan

Sattva is performing ahead of expectations. The first phase is complete. The CFS

became operational in October 2007, although Eredene‟s investment did not

begin to have an impact until H1 2008/09.

Customers include steel-maker ArcelorMittal and India's leading tyre

manufacturer MRF.



There are three warehouses, six acres of stacking yard and 100,000 square feet

of open bonded area.

Financial results

Year to end March 2008 2009 2010

£m £m £m

Profit (loss) before tax 0.036 0.755 0.393

Source: Eredene financial statements

The figures in the table above are somewhat misleading, in that FY 2008/09

benefited disproportionately from an exceptional revenue item: a large client

stored steel and coils for more than a year and revenue has returned to its

„normal‟ pattern in 2009/10.

Traffic in TEUs is a better guide to longer term performance: throughput in

2008/09 was 25,000, jumping by more than 80% to 46,000 in 2009/10. This

means that it was operating in excess of its nominal capacity of 40,000 TEUs pa.

The company paid its first dividend in March 2009, and a second in March 2010.

Eredene has stated that ‘Work on expansion of the facility continues.’ Sattva

Vichoor is currently using only nine of its 26 acres, and we assume that Phase 2 is

under construction with a consequent doubling of capacity and, ultimately,

trebling.

Sattva Vichoor valuations

Valuations recorded in Eredene‟s financial statements have moved as follows:

Eredene audited valuations

ERE year end Dec / March 2007 2009 2010 Current Value

£m £m £m v. Cost

Cost at beginning of year 0.000 0.647 0.880

Investment during year 0.647 0.233 0.000

Unrealised profit/(loss) in year 0.939 0.611 0.796

Year end cost 0.647 0.880 0.880

Valuation carried at year end 1.586 2.430 3.226 +266.6%


The IPEV valuation is already more than three and a half times the investment

cost. Our estimates suggest that there is potential for further improvement in

this.

Our NPV comes out at £4.5m, and our market based value at £5.4m, compared

with recorded value of £2.4m.

Total cost: £0.9m

IPEV: £3.2m




Sattva Conware CFS

Investment in Sattva Conware

Start: Oct-2008

£m

Invested to end March 2010 2.1

Allocated 2.9

Totals 5.0


82.9% 74.00%

Company

Sattva Conware is Eredene‟s second venture in partnership with Sattva Business

Group.

Eredene‟s stake will be diluted in tranches from the initial 85% to 74%, provided

the business achieves a number of staged milestones, with the final milestone

being the payment of the first dividend to shareholders.

Business plan

The CFS in development is located on a State Highway near the town of Ponneri,

about 18km to the north of Ennore. Of the total 60 acres planned, 55 acres have

already been acquired.

This is clearly on a more substantial scale than Sattva Vichoor. With Eredene‟s

stake at a projected 74% if targets are met its commitment to equity is also

much greater (£5.0m v. £0.9m).

As a general rule of thumb, traffic of

4-5,000 TEUs pa can expect to be

processed per acre of CFS. With a

target of 60 acres, this implies

capacity when fully up and running

of 240-300,000 TEUs pa, more than

double that at Vichoor.

The new CFS is targeted more

specifically at the new container

terminal at Ennore, but is being

developed initially as a large-scale

warehousing operation to meet existing demand for warehousing services. It will

be converted into a fully fledged CFS in time for the opening of the new terminal,

which is scheduled for commissioning in Q2 2013.




The master plan is under way.

The first phase should be completed by mid-2011 and will start to receive

revenue from CFS operations.

Sattva Conware valuations

As is the case with MJ Logistic, Sattva Conware is a subsidiary of Eredene and is

not valued separately as an investment.

If it proves to be as successful as Vichoor (under the same management and in

the same region) we can expect excess value to emerge over time.

It is as yet too early, however, to place a basic value on it other than the amount

invested of £2.1m, plus the amount of £2.9m yet to be invested,

Success depends on development of the new container terminal at Ennore, and

its timing. We would expect to return to the question at a later date, possibly with

a higher value.

Total cost: £5.0m

IPEV: investment cost


Contrans Logistic

Investment in Contrans

Start: Oct-2007

£m

Invested to end March 2010 5.4

Allocated 2.5

Totals 7.9


44.00% 44.00%

Company

Contrans was Eredene‟s second investment in container logistics, and the CFS at

Pipavav in Gujarat state the first project with Contrans. The model is similar to

that with Sattva Business Group.

Eredene‟s partners in the development of Contrans (Captains Niroola and Grewal)

already operate successful CFSs serving Mundra Port and Kandla Port, both also

in Gujarat.



Pipavav

Pipavav CFS began trading in January

2008, before completion of most of the

site facilities. The first privately owned

CFS at Pipavav, it occupies a 79 acre site

just 700m from the port gates.

Business plan

The CFS is designed to benefit from container cargo growth at the Port of Pipavav

– Gujarat Pipavav Port Ltd („GPPL‟) – which recently floated on BSE and NSE.

Development of the CFS is in two phases, the first to install TEU capacity of

84,000 TEU, the second to raise it to 150,000.

GPPL has undertaken an expansion project involving development of a new liquid

cargo berth and expansion of the container terminal. On completion of the

expansion project, Port Pipavav will offer container handling capacity in excess of

1m TEU. This compares with Contrans‟ planned capacity of 84,000 TEU pa at the

end of Phase 1, and 150,000 at the end of Phase 2.

Pipavav serves the northern and north-

western regions of India, which have

experienced and are expected to continue

experiencing significant manufacturing and

trade growth. These regions currently

generate 66.0% of the total container

throughput in India, propelling significant

container volume growth at the ports located

on the west coast.


Acquisition of the 79 acre site is complete.

The CFS contains a 96,000 square feet bonded warehouse to handle both imports

and exports and a paved container stacking yard which is equipped with a reach

stacker, three cranes, four forklifts, nine trailers and a 100 tonne capacity

weighbridge, also an office block.

Contrans has been ready for Pipavav Port, but the port has not been ready for it.

The future for the Pipavav CFS depends on development of the port itself.

The GPPL Red Herring shows the port in loss for the six years prior to the IPO, a

period which has also shown massive expenditure on expansion and upgrading.

This has included in particular a dredging operation to deepen the main channel

to 14.5m, sufficient to accommodate large container vessels, which are currently

subject to long delays due to severe congestion at JNPT. There have been

significant delays in this programme, which means that traffic coming through to

Pipavav CFS has been lower than expected. On top of that, 2009 saw a short

lived but sharp countrywide drop in container trade, a result of the world

economic recession.



Dredging was finally completed shortly before the 2010 monsoon season, and

trade in containers, having begun to recover towards the end of 2008/09, has

more recently picked up substantially as India has overcome the „blip‟ in better

shape than the rest of the world.

Baroda

Investment in Baroda project

Start: Aug-2008

£m


Allocated 2.5

Totals 5.0


44.00% 44.00%

Company

Baroda is Contrans‟ second venture.

Business Plan

The Baroda project will provide all the functions with an ICD, and will be the first

such facility in eastern Gujarat.

The ICD is strategically located to feed off

the ports of Mundra, Pipavav and JNPT (the

largest container port in India), as well as

from its position straddling the arterial

connections from North India and the

western parts of the country (Mumbai, highly

industrialised Gujarat etc).

The 136 acre site is long and relatively

narrow – about 800m wide. It is sandwiched

between the two main arterial routes linking

Delhi and Mumbai: on one side is the NH 8

part of the Golden Quadrilateral highway,

and on the other is the main rail route between Delhi and Mumbai, which already

carries the highest freight traffic in India. Indian Railways plans to develop a

dedicated freight line, to which the ICD should have access.

The side immediately next to the railway line is 2,000m long, which is sufficient to

berth a full length freight train. With access on the other side to the NH 8, it

connects immediately with the two main commercial arterial routes.

The ICD will have capacity to handle 100,000 TEUs pa by FY 2014/15, with plans

to raise this to 180,000 by 2017/18 and 280,000 by 2021/22 and ultimately to

400-500,000. Clearly, the investment is of a long term nature, but it is planned to

be in profit before tax in 2013/14 and cash positive in 2014/15.




Baroda is on track.

Purchase of land for the 136 acre site has been completed, a masterplan has

been finalised and road and rail licences for the facility have been approved,

including permission for a siding from the main Mumbai-Delhi railway.

Levelling work has begun, and it is expected that revenues at an initial low level

for open storage will begin in spring 2011. FYs 2011/12 to 2013/14 should see a

rapid build-up.

Contrans valuations

Contrans‟ results to date have been as follows:

Financial Results


£m £m £m

Profit (loss) before tax (0.064) (0.523) (0.487)


These figures relate principally to Pipavav at present – Baroda has not yet

impacted on the P&L – and also reflect the initial trading conditions noted above.


Eredene: audited valuations


£m £m £m v. Cost



Unrealised profit/(loss) in year 0.486 (1.706) 2.668

Year end cost 1.731 4.002 5.405



The write-down in 2008/09 reflected an appropriate degree of caution, given the

disappointing nature of the results (albeit for external reasons), but was more

than reversed the following year.

Container traffic through the Pipavav port improved in H2 2009/10: we would

expect this to begin to wash through to the CFS through 2010/11.

Our estimates show container volume at the Pipavav CFS quadrupling to about

80,000 p.a. by 2013/14. However, Pipavav Port may not achieve the

breakthrough in volumes it expects and delays mean opportunity for other

entrants to the market. There is already another (smaller) CFS located nearby. In

addition, there is potential competition from the port itself. GPPL in its Red

Herring states: ‘We are presently in discussions with parties interested in

establishing key land-related infrastructure facilities for setting up CFS

warehouses and support infrastructure for offshore business companies.’



Baroda has not yet begun to trade, but our estimates are encouraging.

Our NPV calculations suggest a value to Eredene of a much higher number than

IPEV, which we ignore for the present. Our potential value is based on market

ratings.

Total cost: £7.8 – including £2.5m yet to be spent at Baroda

IPEV: £6.9m – before spend of £2.5m at Baroda




LOGISTICS PARKS

Apeejay Infra-Logistics (‘Infra-Logistics’)

Investment in Infra-Logistics

Start: Nov-2007

£m

Invested to end Mar 2010 2.2

Allocated 5.7

Totals 7.9


50.00% 50.00%

Company

Eredene has formed a partnership with Apeejay Surrendra, a major Indian

grouping of businesses prominent in the eastern states of India and in West

Bengal in particular. Eredene has the exclusive right of first refusal on projects

proposed by Apeejay in nine states of eastern India.

Two investments have so far been made through the jointly owned Apeejay Infra-

Logistics Pvt Ltd.

Haldia

Haldia is the fifth largest port in India. It is

also a major petrochemicals centre with an oil

refinery, fertiliser facilities, manufacturing

plants and various light industries, with

companies such as Indian Oil Corporation,

Tata Chemicals, Haldia Petrochemicals and

Mitsubishi Chemical Corporation.

Business plan

The 90 acre site is about 7km from the port of Haldia. Haldia itself is located 90

km downstream from Kolkata (Calcutta) where the Haldi and Hooghly rivers

meet.

The logistics park is located 6km from the NH 41, which provides a link to the NH

6 part of the Golden Quadrilateral. The NH 41 is planned to be widened soon from

two lanes to four. Also planned is a bridge over the Hooghly River, which would

provide a more direct connection with Kolkata.



Gross development cost is estimated at about INR1.99bn (£25m), funded by

equity of £10.5m shared in equal proportion between Eredene and Apeejay

Surrendra, with the remainder by debt.

The park is being developed to provide

end-to-end logistics support and will

include distribution warehousing and

transport services, as well as ancillary

facilities such as commercial offices, hotels,

shopping malls, and light processing

workshops.

The plan envisages a total of about 2m sq

ft, of which 70-75% will be developed,

owned and operated by the JV and the

remainder (principally hotels) by third

parties.

Development is in three phases:

Haldia development phases

Phase 1 Phase 2 Phase 3 Total

INR m £m INR m £m INR m £m INR m £m

Land acquisition 288 3.9 - - - - 288 3.9

Infrastructure 127.3 1.7 140.4 1.9 154.8 2.1 422.5 5.7

Construction

Retail 54.6 0.7 24.1 0.3 26.6 0.4 105.3 1.4

Offices 54.7 0.7 96.4 1.3 106.3 1.4 257.4 3.5

Warehousing & storage 218.1 2.9 241 3.3 265.7 3.6 724.8 9.8

Transport & logistics 8.2 0.1 9 0.1 10 0.1 27.2 0.4

Common/public facilities 50.2 0.7 55.4 0.7 61.1 0.8 166.7 2.2

385.7 5.2 426 5.7 469.6 6.3 1,281.40 17.3

Total capex 801.1 10.8 566.4 7.6 624.4 8.4 1,991.90 26.9

Company, ED


Phase 1 is well advanced. The perimeter wall has been completed, and 20 acres

has been surfaced. A contract has been placed for 140,000 sq ft of warehousing,

which is due for completion in calendar 2010.

Cash flow from open storage has begun, to be followed in Q4 2010 / Q1 2011

with revenue from warehousing.



Kalinganagar

The 30 acre site is in the village of Khurunti

in the state of Orissa, 129km from the

major port of Paradip and 86km from

Dhamra, where a new port is due to be

operational in Q3 2010.

Dhamra Port is a JV between Tata Steel and

L&T, and will be the deepest in India with a

draft of 18m, capable of berthing super cape

size vessels of up to 180,000 DWT. There

will be thirteen berths with an annual capacity of 83m tonnes pa dry bulk, liquid

bulk, break bulk and containerised cargo.

Business plan

The planned park will be the first fully

purpose-built transport and warehouse facility

to serve the Kalinganagar region in Orissa.

It is close to the 13,000 acre Kalinganagar

industrial complex, and targets inbound and

outbound cargo centred round the steel

industry.

Kalinganagar is becoming one of the largest

steel clusters in India. Steel projects in the

area include:

Tata Steel – 6m tonnes plant

Posco (South Korea) – 12m tonnes

ArcelorMittal – 12m tonnes, in Keonjhar nearby.

Other iron and steel producers include SAIL (Nilachal Ispat), Jindal Stainless

Steel, Mesco Steel.

Although smaller than Haldia (30 acres as opposed to 90), the business plan for

Kalinganagar is broadly similar.


Kalinganagar is at a similar stage of development to Haldia, with perimeter wall

complete and 20 acres of the 30 surfaced. A contract has been placed for a

100,000 sq ft warehouse.

Infra-Logistics has signed a joint marketing MOU with Gateway Rail Freight Ltd (a

subsidiary of the BSE quoted Gateway Distriparks Ltd) for transporting road and

rail cargo to and from the facility.



Infra-Logistics valuations


Eredene audited valuations


£m £m £m v. Cost



Unrealised profit/(loss) in year 0.000 0.229 2.059

Year end cost 0.000 1.937 2.196



These valuations are for the company, combining both projects, as are our

following estimates:

Total cost: £7.9m

IPEV: £10.2m (including £5.7m yet to be invested)




THIRD PARTY LOGISTICS (‘3PL’)

MJ Logistic (‘MJLS’)

Eredene investment in MJLS

Start: Dec-2007

£m

Invested to end Mar 2010

7.9

Allocated 3.1

Totals 11.0


90.00% 74.00%

Company

MJLS was a profitable logistics company which lacked the capital to take

advantage of the opportunity the owners perceived for the business. Eredene‟s

equity injection secured an initial 90% of the company, reducing to 74% on

achievement of targets over a four year period.

Targets have not been met, so the ultimate split of ownership may be open to

question.

Business plan

The business in its entirety requires investment of about £25m (INR 2.0bn or

INR200 crore), of which equity is about 44% and debt (non-recourse to Eredene)

about 56%.

The plan involves the construction of a

complex of three new logistics centres,

designed with the latest handling

technologies and IT systems.

The planned complex consists of a „hub‟

and two „spokes‟ serving North India,

centred on National Capital Region

Delhi („NCR Delhi‟). Each logistics

centre is planned to have two

warehouses, one for dry storage and

the other for temperature controlled

cargoes (00 to +100). All three sites will

offer:

Warehousing/cold rooms equipped

with modern material handling and

storage equipment, including heavy duty racks, reach stackers and fork lift

trucks for faster receipt and retrieval of goods

Transportation and online tracking services



Customer order management, office infrastructure support and back office

services, such as packing, labelling, debulking and kitting

The hub and spokes provide similar services, but have important differences in

their purpose. Because of this they vary in size, with the hub accounting for about

50% of total capacity.

Cold storage is significant. With different stacking requirements and higher value,

it is expected to account for about 50% of gross revenue at full operation.

The two spokes are planned to be located in rapidly developing industrial areas.

They will take in raw materials and finished and part finished goods: some will be

distributed back to the areas from which they came in the first place for further

processing: others will be distributed further into local areas, or sent on to the

hub at Palwal for storage and distribution further into North India or elsewhere.

The hub at Palwal is the key to widespread distribution – some cargoes from

there will go to the spokes, others into the metropolitan district of New Delhi,

some elsewhere in India. Spokes are basically local: the hub is general.

Hub at Palwal

Access to major interconnecting routes is therefore key to the success of the hub.

In addition to established rail routes, the chosen site is favoured by existing and

planned roads, and by its proximity to major manufacturing centres,

demonstrated by the following map:

The hub is located on a 21 acre site located next to the NH 2, on the Golden

Quadrilateral 60km south of Delhi. It is within a 15km radius of three CFS/ICD

operations: two major automobile manufacturing hubs are within two hours

driving distance; and it can serve NCR Delhi, which is the largest FMCG and retail

market in India.



Spokes

The spoke at Uttaranchal is on a twelve acre site in the Haridwar Industrial Area

approximately 220km from Delhi: the spoke in Punjab is five acres in area, but

acquisition of this has been postponed.

The MJLS management believes that a single hub can support 6-8 spokes; while

the concept can also be transferred to other major centres within India, e.g. to

Mumbai, Calcutta, Chennai, Bangalore etc.


Financial results


£m £m £m

Profit (loss) before tax (0.020) (0.179) (1.046)


Progress has been much slower than expected. The business plan envisaged a

three phase development of the hub at Palwal, Ambient 1, the first zone (220,000

sq ft), to be followed by Ambient 2 and then by Cold Store, with the whole

complex fully operational by the beginning of March 2009. Construction of the

spoke at Uttaranchal was expected to begin at the end of Q2 2009 and that at

Punjab in Q3.

It was also intended that the old site at Mandoli would be phased out over a

period of about twelve months and its business transferred to Palwal.

In the event, revenues from Palwal did not really kick in until January 2010,

almost a year behind schedule, and have been well below original targets. Delays

in construction and kitting out have been the principal cause. Furthermore, the

premises at Mandoli are still operational – presumably clients have been reluctant

to transfer until the Palwal operation has been proved.

There is still work to be completed at Palwal, and maintaining two sites has

resulted in overstaffing – the Eredene group accounts5 for 2009/10 show an

average 15 employed in management and administration (against eight the

previous year) and 28 in warehousing (18).

So the business plan has changed. Development of the spoke at Uttaranchal has

been put on hold until Palwal is fully operational and has filled more of its

capacity. Similarly, the land in Punjab has not been acquired.

The last few months have, however, seen a marked improvement, with Palwal

revenues beginning to match those of the site at Mandoli and the company

reaching breakeven at the EBITDA level. There is evidence of some clients

beginning to transfer to the new concept, and major new clients include

companies such as Tata Motors, McCain Foods and Danisco.

5 As a 90% owned subsidiary, MJ Logistic is consolidated into the group accounts, as is Sattva Conware. Other investments are shown at valuation.



MJLS valuations

MJLS is a 90% owned subsidiary of Eredene, and the investment is included in

the consolidated accounts at cost.

The original rationale still looks good, but Eredene has so far invested equity of

£7.9m. Taking into account loans (non-recourse to Eredene) of £5.8m, this

means that a total of £13.7m has been put into the project to date, and the

management of MJLS has yet to demonstrate the longer term strength of the

business and its wider potential.

We would expect it to be able to achieve this, but it would be incautious at this

stage to assign value to the project at a figure higher than the amount invested

and conditionally allocated so far. Results over the next year will provide a better

guide to underlying value and long term potential.

Total cost: £11.0m




LOW COST HOUSING

The Matheran project

Investment in the Matheran project

Start: Jul-2007

£m


Ownership Effective

63% to 75% - see text

Company

There are two operating companies, Matheran Realty („MRPL‟) and Gopi Resorts

(„Gopi‟).

Ownership of the project is complex, best illustrated by the following schematic:

Project ownership

Company / ED

Eredene has effective ownership of 63% of MRPL and of 75% of Gopi but, as

neither direct holding is 50% or more, they are not consolidated as subsidiaries

and are valued separately as investments.

Gopi owns and is the vehicle for development of the first 100 acres to be

developed, at Karjat Central. Eredene therefore owns an effective 75% interest in

the first site to be developed, falling to 63% for the remainder of the project.

Business plan

The prime target market for the development is the seven million lower middle

class occupants of the Mumbai (Bombay) region, who at present live in slums –

and their numbers are increasing.

The first phase has been named Tanaji Malusare City („TMC‟).

The following map of the Mumbai Metropolitan region places the location in

relation to Greater Mumbai and Navi Mumbai (New Bombay):



Mumbai Metropolitan area

Map source: Eredene

Indian infrastructure is notoriously poor, but is now the subject of major

investment. The recent extension of the Mumbai rail system to both Karjat and

Khardi is shown in the following rail map:

Mumbai rail system

Company

To Pune

Khardi



Housing units will be affordable to lower income groups, at a typical cost to the

buyer of about INR560,000 (£7,000), with a target market of a household income

of about INR8,500 per month (£1,250 pa) or less. Some units may go to those

earning up to R30,000 per month (£4,500 pa).


Initial marketing took place in August 2008, off plan. 65,000 people applied.

About 3,000 deposits have been taken against the first phase of development.

Work is taking place on about 80 acres, and a cluster of ten apartment blocks is

scheduled for completion and occupation during calendar 2010, with a planned

5.7 million square feet of residential buildings, retail and commercial units. The

project also includes provision of associated infrastructure for the township,

including internal roads, water and sewage treatment plants, street lighting, and

water and electricity supply. Some 2.5km of roads have been constructed and the

rest of the infrastructure is well advanced.

Development has, however, been severely limited by lack of funds. Eredene has

already invested about £13m of equity, but Gopi Resorts has been constrained

from borrowing by litigation undertaken by a shareholder: it has been prevented

from changing membership of the board and from raising the debt necessary for

implementation of the business plan.

The first consequence of this is a slowing of the project.

The second is the risk that Matheran, although continuing to operate on minimum

funding, may have to slow drastically. The court case could take another year

before it is resolved.

The two operating companies need to be looked at separately.

Matheran Realty

Investment in MRPL

Start: Jul-2007

INR m £m

Invested to date 820 10.1

Ownership Effective

63.00% - see earlier

Company

Financial results


£m £m £m

Profit (loss) before tax (0.221) (0.081)




Eredene : audited valuations


£m £m £m v. Cost




Year end cost 5.992 10.128 10.128

Valuation carried at year end 6.355 4.987 8.086 -20.2%


MRPL has acquired land development rights, but has undertaken no development

so far. Land rights acquired to date amounts to about 230 acres (not including

the Gopi Resorts 100 acres).

So valuations represent only value of land, and have been affected by, in the first

instance, the fall in land prices in the downturn in FY 2008/09, and then by the

recovery in 2009/10.

Gopi Resorts

Investment in Gopi Resorts

Start: Apr-2008

INR m £m

Invested to date 200 2.5

Ownership Effective

75.00% - see earlier

Company

Financial results


£m £m £m

Profit (loss) before tax (0.033) (0.222)




£m £m £m v. Cost



Unrealised profit/(loss) in year 0.000 1.748 (1.090)

Year end cost 0.000 2.542 2.542



Gopi has been valued as a trading entity. It has constructed assets which have

potential value on sale, reflected in the carried valuation at year end which is

26% over cost.



Valuations

Eredene appears to be confident about the result of the court action. The problem

is that the litigation could take another year for resolution, with obvious risks for

the project.

The following table shows valuations for the project as a whole, treating the two

companies as a combined entity:

Eredene audited valuations (combined)


£m £m £m v. Cost




Year end cost 5.992 12.670 12.670



We can envisage a much higher value for Matheran than this. Given a clear run,

the Gopi development should be capable of substantial returns, and the MRPL

land (more than twice the size of Gopi) has yet to come into the frame. There is

also scope for further expansion by a phased acquisition of land for similar

developments at various sites on or close to the Mumbai suburban rail network.

At present, everything is more or less on hold and, for our purposes, it would be

risky to deviate from the IPEV valuation.

Progress on the court case should enable us return to the topic with a higher

estimate of potential value.

Total cost: £12.7m

IPEV: £11.3m




OFFICE DEVELOPMENT

Sribha Infrastructure Solutions

Investment in Sribha

Start: 2008

£m


Allocated 0.0

Totals 2.1


36.50% 36.50%

Company

Sribha is developing high end

dedicated IT office space in Bangalore

and construction has taken place on

the first 70,000 sq ft office tower in

Bangalore.

Total development cost is estimated to

be INR920m (£11.5m), 50% to be

provided by debt.

Bangalore is the centre of the IT

industry in India. The planned office space is aimed at that market, in which

Eredene‟s investment partner is heavily involved.

SGT is a US-based company with headquarters in Houston and additional offices

in Boston, Detroit, and multiple offices in Bangalore and Chennai. It is a global

provider of IT, business process outsourcing, call centre and engineering services.

More than 50% of the space in Bangalore has been pre-let to Symcon‟s sister

companies in India.

The project is currently on hold pending further funding from the investment

partner, Eredene having fulfilled its commitment.

Sribha valuations




£m £m £m v. Cost



Unrealised profit/(loss) in year 0.000 (0.503) (1.132)

Year end cost 0.000 2.126 2.126





Total cost: £2.1m

IPEV: £0.49m




5: MANAGEMENT

The following details are taken from the Eredene web site:

Chairman (non-executive)

David Coltman has over 40 years of international experience in major and

complex logistics projects, including recently in India. After 14 years at British

Airways (BA), David moved to British Caledonian where he became Chief

Executive. After its acquisition by BA he moved to United Airlines, where from

1995 to 2001 he was Chief Marketing Officer and Executive Officer of the UAL

Corporation, based in Chicago. David is the Chairman of Edinburgh Worldwide

Investment Trust PLC, and the Senior Independent Director of John Menzies PLC,

a leading international logistics company with significant interests in India. David

read Chemical Technology at Edinburgh University.

Chief executive

Alastair King qualified as a solicitor and practised in London and Central Asia

with Baker & McKenzie. From 1999 to 2002, he held several senior positions

within NewMedia SPARK PLC, an early stage technology venture capital investor.

From February 2002, he was Managing Director of Galahad Capital PLC, then an

AIM-quoted cash shell, which completed the acquisition of Shambhala Gold

Limited in December 2003 and changed its name to Galahad Gold PLC. Alastair

King left the board of Galahad Gold in December 2004. He holds an MSc in

finance from London Business School and founded Eredene Capital plc in January

2005. Alastair King is a part of the executive team and a board member with

main responsibilities including management of the company's investment

strategy, capital raising, and investor relations.

Executive director

Gary Varley is a Chartered Accountant with board level experience in sectors

including private equity and real estate development. He joined

PricewaterhouseCoopers in 1994, where he practised in the firm's audit,

management consultancy and forensic accounting divisions. As well as a number

of board level commercial roles, he was previously a Principal with the AIM

quoted venture capital investor NewMedia SPARK PLC where he sat on the fund's

investment committee. Mr Varley was most recently Finance Director of Nicholas

King Homes PLC, a UK residential property developer. Gary Varley is the Finance

Director and a core member of the executive team with responsibilities including

investment analysis, structuring and execution

Non-executive directors

Sir Christopher Benson has been involved in real estate investment and

development throughout his career. He gained significant development

experience when with Arndale, which was followed by his appointment as

Managing Director of MEPC. He has previously been Chairman of MEPC, Royal and

Sun Alliance, Boots the Chemist, Costain and Albright & Wilson. He was also

Chairman of the London Docklands Development Corporation. Sir Christopher

Benson sits on the audit and remuneration committees.



Charles Cayzer is an Executive Director of Caledonia Investments plc, one of the

largest Investment Trusts listed on the London Stock Exchange. Having gained

experience of merchant banking, commercial banking and corporate and project

finance with Baring Brothers, Cayzer Irvine & Co and Cayzer Ltd, Charles was

appointed a director of Caledonia in 1985, where he has responsibility for

Caledonia's real estate investments. He is also a director of The Varun Shipping

Company Limited in India and several private companies.

Nikhil Naik was until March 2006 Regional Director of P&O in India and has a

successful record in sourcing and managing large infrastructure projects

throughout South Asia. An Indian national, Nikhil led P&O's activities in South

Asia for two years. He was an employee of P&O for 10 years during which he held

a number of senior positions, including that of CEO of Mundra International

Container Terminal at Mundra Port, a substantial port operator in Western India.

Nikhil is a core member of the executive team and heads Eredene Capital PLC's

investment analysis and execution advisory teams in India.

Nikhil Naik is not allowed to vote on any investment proposal that he and his

team put forward to the Eredene Board.

Principal

Ranveer Sharma has been with Eredene since 2005 and is a member of the

investment committee with investment analysis, execution and monitoring

responsibilities. He has more than ten years experience in consulting and

investment roles. Ranveer previously worked with Citicorp in New York, Los

Angeles and Mumbai at various Citigroup entities including Citibank and Citigroup

private bank on development and implementation of financial services software

solutions. Prior to this, Ranveer worked at ING's Indian arm, ING Vysya Bank,

where his role mainly focused on managing and implementation of the bank's IT

platform. Ranveer holds an MBA in private equity and corporate finance from

London business school and an MS in computer science from Jiwaji University,

Gwalior, India.



6: PARTNERS IN INDIA

Apeejay Surrendra – Haldia and Kalinganagar Logistics Parks

Apeejay Surrendra is one of India‟s largest and most profitable privately owned

family businesses, founded in 1910. Its influence within India spreads beyond

Calcutta to West Bengal and the whole of the east of India. Its activities include:

Real Estate and Hospitality: real estate development in the retail and

hospitality sectors. Developed and manages the Park boutique hotels, located

in Bangalore, Chennai, Navi Mumbai, New Delhi, Kolkata, and Visakhapatnam

Shipping: Apeejay Shipping Limited is India's largest privately owned

shipping company, with a fleet of modern dry bulk carriers operating

worldwide & in the Indian coastal trade. Total DWT capacity is 0.363m tonnes

with the average age of the fleet under 14 years

Tea: Apeejay Tea is among the largest producers in India with a workforce of

over 40,000 and 17 estates producing over 21m kilograms of tea from a

plantation area of more than 30,000 acres. In 2005 Typhoo Tea was acquired

from Premier Foods plc for £80m

Financial Services: Apeejay Insurance Broking Services caters to corporate

and retail segments. The stockbroking and retail finance businesses were sold

to ILFS Investmart India and Société Générale, France in 2006 and 2007

respectively.

MJ Logistic

Anil Arora, founder and MD, transformed his family‟s traditional warehousing

business from a landlord-tenant model into a third party logistics („3PL‟)

company. He built and managed the warehousing and distribution business over

the past twelve years.

Sugato Chandra has 25 years of experience in multinational companies (Philips,

Semcorp Logistics and TAKE Solutions – a Level 5 supply chain solutions

company), with 15 years in different aspects of the supply chain, and has

designed and implemented logistics centre projects in India.

Sarvjit Singh (President) is a past chairman of Central Warehousing Corporation,

the leading public sector warehousing company in India, and has been Advisor to

the India Trade Promotion Organisation of the Ministry of Commerce.

Contrans Logistic and Gujarat ICD

Both Captain Niroola and Captain Grewal are former sea captains, with more

than 40 years of combined experience in the industry. They have a successful

track record in the CFS and shipping sectors and have been operating CFSs at

Mundra Port (serving a DP World owned terminal) and Kandla Port (one of India‟s

Major Ports), both in Gujarat state.

Sattva CFS Vichoor and Ennore CFS

Sattva Business Group is a family owned group with diversified trading

interests ranging from the processing and export of cashew nuts to construction,



IT services and courier services. It is active in logistics, embracing warehousing,

shipping services, Inland Container Depots („ICD‟) and container freight stations.

The company‟s first CFS in Chennai is ranked third in the Chennai region by traffic

handled.

Matheran Realty and Gopi Resorts

Joe Silva is an entrepreneur with a background in Telecoms (as a main

contractor for the construction of telecom towers: in Cal Tiger, the first large

scale ISP in India); and in food manufacture and processing. In the latter capacity

he has built up relationships with the farming communities around Mumbai -

through his company Silvex he has more than 25 years of land and property

development experience in the Mumbai market and is a key agent in the

acquisition of the land MRPL needs for its development.

Sales Contacts

Research Services Investor Access

Darren Mitchell

Direct: 0207 065 2698

Tel: 0207 065 2690

email: [email protected]

Hannah Crowe

Direct: 0207 065 2692

Tel: 0207 065 2690

email: [email protected]

Analyst Contacts

Consumer

Peter Temple – Senior Analyst

[email protected]

Financials

John Borgars – Senior Analyst

[email protected]

Media

Derek Terrington – Senior Analyst

[email protected]

Mining / Infrastructure

Conor Fahy – Senior Analyst

[email protected]

Oil & Gas

Samantha Dobbin – Senior Analyst

[email protected]

Pharmaceuticals / Biotechnology

Lorenza Castellon – Senior Analyst

[email protected]

Renewables

Denis Gross – Senior Analyst

[email protected]

Technology

John Walter – Senior Analyst

[email protected]

Telecoms

Philip Carse – Senior Analyst

[email protected]

This report is intended for

Professional Clients, Self-certified High Net Worth or Sophisticated Investors Only.

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have an interest in the contents of this document and/or in the Company, In the preparation of this report, ED have taken

professional effort to ensure that the facts stated herein are clear, fair and not misleading but makes no guarantee as to the

accuracy or completeness of the information or opinions contained herein

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United Kingdom („FSMA‟). Any person who is not a relevant person under this section should not act or rely on this document

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