Hi-Tech Carbon Return on Equity (Benchmark) calculation

Methodology: Capital Asset Pricing Model (CAPM) model is used to estimate the return on equity expected by any power generation company operating in India considering the specific characteristics of the pr subjective profitability

Methodology for calculating Return on Equity S.No Description Parameter

Methodology

Return on equity

Rs = Rf + s (Rm- Rf)

Using CAPM model

Beta value

Beta value of power generation companies in India

Risk free rate

Rf

Rate offered by the Indian government securities d (for Line 2 WHR project, based on 2002 - 03; Line is considered as risk free rate

Market return

Rm

Arithmetic mean of BSE SENSEX market return is considered for 10 years based on market economi

Assumptions considered for benchmark calculation

S.No Description

1 Beta value

Values Line 2 Line 3 WHR project WHR project 1.02 1.33

2 Risk free rate 3 Market return

7.34% 15.12%

6.11% 16.05%

used to estimate the return on equity ia considering the specific characteristics of the project type and not linked to

Methodology

Reference National Stock Exchange of India Limited "Surveillance in Stock Exchanges Module Work book"

Using CAPM model

Beta value of power generation companies in India

Capital line Plus (Capitaline is a sister product of capital mar

Rate offered by the Indian government securities during project decision making period (for Line 2 WHR project, based on 2002 - 03; Line 3 WHR project, based on 2004 - 05) Reference book titled "Corporate finance theory and is considered as risk free rate Practice", by Dr.Aswath Damodaran Arithmetic mean of BSE SENSEX market return is considered for 10 years based on market economic situation after 1991. Ibbotson Associates (it is an international consulting firm provides a solution for calculating the equity risk premium for international markets.)

Unit

Source of data used

% %

Capitaline plus (Attachment 2) Reserve Bank of India - Central government securities(http://rbidocs.rbi.org.in/rdocs/Publications/PDF s/80303.pdf) BSE SENSEX (www.bseindia.com)

Reference National Stock Exchange of India Limited "Surveillance in Stock Exchanges Module Work book"

Capital line Plus (Capitaline is a sister product of capital market, India`s foremost investment fortnightly) Reference book titled "Corporate finance theory and Practice", by Dr.Aswath Damodaran Ibbotson Associates (it is an international consulting firm provides a solution for calculating the equity risk premium for international markets.)

Cost of capital calculation Formulae: Cost of Equity = Risk free rate + applicable beta value (Market return - Average risk free return)
Project Name Line 2 waste gas based WHR system (TG 3) Applicable Beta 1.02 Risk Free Rate 7.34% Market return 21.47% Average Risk Free Return 11.52% Market Risk Premium 9.95% Cost of Equity 17.5%

Project Name Line 3 waste gas based WHR system (TG 4)

Applicable Beta 1.33

Risk Free Rate 6.11%

Market return 19.50%

Average Risk Free Return 10.56%

Market Risk Premium 8.94%

Cost of Equity 18.0%

Beta Values of all Litsed Power Generating Companies in India at the time of Project Investment (TG 3) Company Name Beta

Beta Values of all Litsed Power Generating Companies in India at the time of Project Investment (TG 4) Company Name Beta

RELIANCE ENERGY 0.37 GUJARAT INDS 1.12 TATA POWER CO 1.01 NEYVELI LIGNITE 2.15 CESC LTD 0.41 BF Utility 1.07 Average beta value 1.02 Source:Capitaline plus (http://www.cline.capitaline.com/new/index.asp)

RELIANCE ENERGY 1.59 GUJARAT INDS 1.596 TATA POWER CO 1.49 NEYVELI LIGNITE 1.49 CESC LTD 1.05 BF Utility 0.74 Average beta value 1.33 Source:Capitaline plus (http://www.cline.capitaline.com/new/index.asp)

Interest rate on Central Government Securities

Year S.No Range Wt. Average Compunded Return 1992-93 0 100.0 1-Apr-93 1993-94 1 12.00-13.40 12.63% 112.6 1994-95 2 11.00-12.71 11.90% 126.0 1995-96 3 13.25-14.00 13.75% 143.4 1996-97 4 13.40-13.85 13.69% 163.0 1997-98 5 10.85-13.05 12.01% 182.6 1998-99 6 11.10-12.60 11.86% 204.2 1999-00 7 10.73-12.45 11.77% 228.3 2000-01 8 9.47-11.70 10.95% 253.2 2001-02 9 6.98-11.00 9.44% 277.2 2002-03 10 6.57-8.62 7.34% 297.5 11.52% 2003-04 11 4.62-6.35 5.71% 314.5 2004-05 12 4.49-8.24 6.11% 333.7 10.56% Source : Reserve Bank of India records (http://www.rbi.org.in/home.aspx) Applicable for line 2 (TG3) system Applicable risk free rate Applicable average risk free return Applicable for line 3 (TG4) system Applicable risk free rate Applicable average risk free return

7.34% 11.52%

6.11% 10.56%

BSE SENSEX

Year

Open

High

Low 1980.06 3405.88 2891.45 2713.12 3096.65 2741.22 3042.25 3491.55 2594.87 7697.39 2828.48

Close 3346.06 3926.9 3110.49 3085.2 3658.98 3055.41 5005.82 3972.12 3262.33 8839.87 3377.28

Variation Annual Return 27.82% 14.26% -20.45% -0.93% 18.18% -16.48% 63.32% -23.75% -18.25% 170.99%

1993 2617.78 3459.07 1994 3436.87 4643.31 1995 3910.16 3943.66 1996 3114.08 4131.22 1997 3096.16 4605.41 1998 3658.34 4322 1999 3064.95 5150.99 2000 5209.54 6150.69 2001 3990.65 4462.11 2002 3262.01 21206.77 2003 3383.85 3758.27 *Source www.bseindia.com

-0.19%

Line 2 WHR system (TG3) Line 3 WHR system (TG4)

21.47% 19.50%

Arithmetic Mean