Annexure XIV Continued… - Edelweiss

primary raw materials we require for the constructions of our projects. Of our commodity-driven risks, we are
primarily exposed to risks associated with the generation, fuel procurement and power trading of electricity.
We do not enter into any derivative transactions to hedge against our exposure to movements in such
commodity prices.
We have entered into certain long-term fuel supply agreements and long-term contractual obligations for sales
of electricity to other load-serving entities. For further details, please see the section titled "Our Business" on
page 136 of this Draft Red Herring Prospectus.
Interest Rate Risk
Our interest rate risk arises from long-term borrowings. As of March 31, 2011, ` 15,921.73 million, or
96.27%, of our total fund-based indebtedness was at floating rates of interest. As a practice, we are not
entering into hedging transactions to hedge against fluctuations in interest rates other than with regards to
external commercial borrowing loans (discussed below). As of March 31, 2011, ` 10,437.74 million, or
63.14%, of our total fund-based indebtedness that was at floating rates of interest was not hedged. We
undertake debt obligations to support capital expenditures, working capital and general corporate purposes.
Upward fluctuations in interest rates increase the cost of new debt and interest cost of outstanding variable rate
borrowings and therefore increase the cost of projects. An increase in interest rates of 1% on our existing
variable rate debt would increase our annual interest liability by approximately ` 103.82 million based on the
secured loans outstanding of ` 16,532.22 as of March 31, 2011.
Currency Exchange Risk
Changes in currency exchange rates may affect our results of operation. As of March 31, 2011, approximately
33.16% of our total fund-based indebtedness of ` 16,538.44 million was denominated in U.S. dollars. All of
our external commercial borrowings outstanding as on March 31, 2011, both principal and interest, are fully
hedged. We carry exchange rate risk in respect of equipment orders for which have been placed as of March
31, 2011 to foreign suppliers. We also expect our future capital expenditures in connection with our proposed
expansion plans to include expenditure in foreign currencies for imported equipment and machinery.
Depreciation of the Indian rupee against the USD and other foreign currencies may adversely affect our results
of operations by increasing the cost of any proposed capital expenditures in foreign currencies.
Inflation
India experienced very high levels of inflation from 2008 to 2010, with year on year inflation peaking at
11.00% in April 2010. Year on year inflation has since fallen slightly but continues to be high and stood at
8.30% in February 2011 (Data source: http://eaindustry.nic.in/wpi_data_display/display_data.asp). We set the
price for our services and products based on various factors, including inflation. Inflation has, therefore, not
had a significant impact on the results of our operations.
Unusual or Infrequent Events or Transactions
Except as described in this Draft Red Herring Prospectus, there have been no other events or transactions that,
to our knowledge, may be described as "unusual" or "infrequent."
Significant Economic Changes that Materially Affected or are Likely to Affect Income from Continuing
Operations
Except as described in the section titled "Industry Overview" on page 125 of this Draft Red Herring
Prospectus, to our knowledge, there are no significant economic changes that materially affected or are likely
to affect our income from continuing operations.
Known Trends or Uncertainties
Except as described in this Draft Red Herring Prospectus, particularly in the sections titled "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 18 and
280 of this Draft Red Herring Prospectus, respectively, to our knowledge, there are no known trends or
uncertainties that are expected to have a material adverse impact on our revenues or income from continuing
operations.
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