swarnendu bhushan - elara capital · turkmenistan, uzbekistan & kazakhstan • myanmar-yunnan...

Swarnendu Bhushan

[email protected]

+91 22 6164 8504

Durgesh Poyekar

[email protected]

+91 22 6164 8541

Elara Securities (India) Private Limited Private & Confidential

Worsening climate: a vote for gas

China’s change of heart

Alarm bells: China reports >200 days of smog per annum in major

cities; cost-to-GDP of 13% (Source: Global Commission on Economy &

Climate)

Steps up: fixes 2030 as peak CO2 emissions year; share of non-fossil

fuels to rise to 20% by 2030

Reforms underway: pricing reforms implemented in April 2015; ongoing

retrofitting from coal to natural gas

Fresh pledges: 2x mkt share of gas in the primary energy mix by 2020

Gas – not a cheap story: spends ~USD 60bn over the past 10 years to set

up infrastructure. Consumption rises 7x over 2000-14 (Source:

WoodMackenzie). For eg: ENN Energy and China Gas

Road ahead for India

Pandemic: Air pollution costs USD 18bn annually to the economy

Judicial activism: directs the government to make CNG mandatory in a few

cities of four states

Reluctant signatory: to UNFCCC & Kyoto protocols; agrees to cut

emissions intensity of GDP by ~25% by 2020

Reforms at a snail’s pace: transparent gas pricing, deregulation of petrol &

diesel, and priority to gas for city gas distribution (CGD) consumption;

natural gas currently accounts for 7.1% of primary energy mix

Lack of capex: spends INR 650bn on gas infrastructure over 2004-

14. Consumption rises only 1.9x, given infra & supply constraints

Structural opportunity

All that gas: 700mn Indians out of gas economy; consumption in the

CGD sector to increase to 51 mmscmd by 2022 (currently 15 mmscmd);

benefits CGD firms: Indraprastha Gas and Gujarat Gas

Supply pinch: current domestic supply is ~90mmscmd, which is 35%

lower than demand; the gap to rise to 90mmscmd by FY18E; benefits

LNG importers like Petronet LNG

Pipe dreams: adding 11,000km to existing 15,000km gas grid; benefits

gas transmission firms: GAIL & GSPL

Our top picks

Petronet LNG (PLNG IN, Buy, TP: INR 242, Upside: 37%): expansion-

led volume growth of 49% to boost EBITDA by 56% over FY15-18E; higher

earnings visibility post expansion in December 2016

Indraprastha Gas (IGL IN, Buy, TP: INR 644, Upside: 38%): no

regulatory overhang, volume growth of ~7%; free cash flow of INR 5bn pa

Gujarat State Petronet (GUJS IN, Buy, TP: INR 173, Upside: 44%):

volume CAGR of ~12% over FY15-18E; stable tariff of INR 1,200/tscm

Gujarat Gas (GGAS IN, Buy, TP: INR 910, Upside: 22%): volume

growth of ~9% led by industrial demand; low spot LNG prices to help demand

GAIL India (GAIL IN, Accumulate, TP: INR 347, Upside: 18%):

transmission volume to improve by 19% & trading by 14% over FY15-18E;

profitability of petchem to get a boost from lower LNG cost

2


Gasping for clean air

Note: *Score of 100 indicates best air quality; Source: Yale university’s Environmental Performance Index, Elara Securities Research

80 - 100

40-80

0 - 40

Air quality score

3

Biggest contributors to CO2 in

2013:

China: 29%

US: 15%

EU: 11%

India: 6%

China and India: culprits in

emissions growth

China’s GDP grows at an average of

9.7% during 2000-14 vs India’s

7.0% (global rate at 2.7%)

Increased industrialization results in

higher emissions

India accounts for 28% of CO2

emissions growth in 2014, the

largest globally, followed by China

at 15%


Consensus emerges

4

Setting the stage Advantage natural gas

Note: GHG stands for green house gases; Source: Industry, Elara Securities Research

40

60

80

100

0 2 4 6 8 10 12

CO2 (kg/mmBtu)

CH4 (g/mmBtu)

Diesel

Petrol

Bituminous coal

LPG

Natural Gas

Natural gas emits ~30% lower GHGs

1988: the World Meteorological Organization (WMO) & the United Nations

Environment Programme (UNEP) set up Intergovernmental Panel on Climate

Change (IPCC) to assess data on climate change

First report: UN uses IPCC’s report to establish UN Framework Convention on

Climate Change (UNFCCC) to contain GHG emissions

1997 Kyoto Protocol: By 2012, developed countries would reduce emissions

by 5.2% over the 1990 levels. Covers not only CO2 but also other GHGs. Comes

into force from 2005

Promises, promises

Lima, 2014: Countries come forward with proposed emissions reduction targets

in 2015

US pledges: to cut 26-28% emissions by 2025

China fixes 2030 as peak CO2 emissions year; share of non-fossils to rise

to 20% by 2030

India signs UNFCCC & Kyoto protocols: commits to reduce emissions

intensity of GDP by 20-25% by 2020

Paris, December 2015: stricter guidelines for legal enforcement

China & India: the sparring begins

Not even close: Natural gas accounts for 7.0% of primary energy mix in India

and 5.6% in China, well below 24% globally

China’s gas infra ambitions: expanding trunk pipelines by 42%; securing

access to gas sources (USD 70bn pipeline from Russia)

India getting its act together: gearing up for ~70% expansion in trunk

pipelines and doubling LNG import terminal capacity


No bragging rights over these statistics

PM10 reading in leading cities in India is ~7x WHO norm PM2.5 reading in leading cities in India is 6x WHO norm

Note: PM10 stands for particulate matter smaller than 10 micrometers in size Source: WHO, Elara Securities Research

Note: PM 2.5 stands for particulate matter smaller than 2.5 micrometers in size Source: WHO, Elara Securities Research

Source: WHO, Under The Dome, Yale University, Elara Securities Research Source: WHO, Centre for Science & Environment, Yale University, Elara Securities Research

5

Ranks 176 out of 178 nations in Environmental Performance Index on

air quality (Source: global study by Yale University)

500,000 people die due to air pollution-related diseases

15 types of carcinogens found in PM2.5 samples

More than 200 days of smog in its cities

Ranks 174 out of 178 nations in Environmental Performance Index on

air quality

620,000 pre-mature deaths

Peaks of PM2.5 are 200x acceptable limits

India has not even started exhaustive collection of data on pollution

China – dragon declawed India – defanged tiger

0

50

100

150

200

250

300

350

Delh

i

Mum

bai

Bangalo

re

Chennai

Kolk

ata

Nash

ik

Pune

Koch

i

Agra

Beijin

g

Guangzh

ou

Shanghai

Chengdu

Guangzh

ou

Hangzh

ou

Shenzh

en

Wuhan

Baodin

g

Xia

ngta

n

Hefe

i

Lanzh

ou

Los

Angele

s

Port

erv

ille

Bakers

field

Fre

sno

San D

iego

Atlanta

Fairbanks

Phila

delp

hia

Riv

ers

ide

PM10 (µg/m3)

India - 134 China - 90 US - 20

WHO guideline

Vehicular emissions account for 30-40% of

pollution

0

30

60

90

120

150

180

Delh

i

Mum

bai

Bangalo

re

Chennai

Kolk

ata

Nash

ik

Pune

Koch

i

Agra

Beijin

g

Guangzh

ou

Shanghai

Chengdu

Guangzh

ou

Hangzh

ou

Shenzh

en

Wuhan

Baodin

g

Xia

ngta

n

Hefe

i

Lanzh

ou

Los

Angele

s

Port

erv

ille

Bakers

field

Fre

sno

San D

iego

Atlanta

Fairbanks

Phila

delp

hia

Riv

ers

ide

PM2.5 (µg/m3)

WHO guideline

India - 59 China - 41 USA - 12

Vehicular emissions account for 30-40% of

pollution


Mission 2030: China’s action plan

6

Steps up reforms

Serpentine infrastructure: thrust on trunk pipelines increasing from

40,000km to 57,000km and seven new LNG terminals

Pricing reforms: implemented in April 2015; 10% discount to a basket of

60% FO and 40% LPG

Coal to natural gas retrofits by 2017 for coal-fired boilers, industrial

furnace & captive coal-fired power plants by 2017; Beijing to close four major

coal-fired power plants by 2016

Shares long-term vision

Declares 2030 as peak year for CO2 emissions: although China ratified

the Kyoto protocol in 2002, it was under no binding contract under the

protocol. Yet, it signed an agreement with the US in 2015 to set limits

Aims to double market share of natural gas in primary energy mix to

10% by 2020 from 5.6% currently to cut emissions

Challenging times ahead for India

Currently, no pan-India pollution parameters for data collection

No pipeline for importing gas: against import pipeline capacity of

115mmscmd in China, India has none. Slow progress on the Turkmenistan-

Afghanistan-Pakistan-India pipeline

Lack of infrastructure: Large regions still do not have access to gas; only

54 areas have an operational CGD

Only four out of 29 states have mandated CNG use: Gujarat,

Maharashtra, Delhi and Karnataka have been mandated to use CNG

Defines “acceptable” pollution norms

Reduce PM10 levels by 10% by 2017 from the levels in 2012 (Source: State

Council, China)

Lower PM2.5 levels by 25% in Beijing-Tianjin-Heibei, 20% in the Yangtze

River Delta and by 15% in the Pearl River Delta

Control fine particulate matter in Beijing below 60micro-gm/m3


China infrastructure: build it and they will come

Shoring up transmission

Source: Wood Mackenzie, GE, Elara Securities Research

• Trans-Asia Gas Pipeline delivers gas from

Turkmenistan, Uzbekistan & Kazakhstan

• Myanmar-Yunnan Pipeline

• Siberia-China Pipeline by 2020

Import pipelines

• 12 LNG import terminals with capacity of

35mn tonnes pa (20mn tonnes imported in

2014)

• Seven new import terminals & two

expansions with total capacity of 28mn

tonnes pa under construction

LNG import terminals

• Total gas transmission length in excess of

40,000km for trunk pipelines; 17,000km of

trunk pipelines planned

• ~500,000km urban gas pipeline network

• 23bcm of storage capacity planned by 2015

• ~7,000 gas refuelling stations and 2,500 LNG

fuelling stations

Domestic gas infrastructure

7

Existing pipeline infrastructure

Source: US Energy Information Administration, Elara Securities Research

Gas infra beneficiaries in India: Petronet LNG, GAIL, GSPL and CGD firms

Regasification facility, operating

Regasification facility, planned or under construction

Natural gas pipeline, operating

West-to-East Gas Pipeline

Beijing

Shanghai

Hong Kong

Central Asian Gas Pipeline


China’s transition into a gas economy

8

China’s gas consumption explodes

Source: BP, State Council, Elara Securities Research

China’s primary energy mix turning less polluting

Source: BP, State Council, Elara Securities Research

Sector-wise consumption of gas for China (2014)

Source: Oxford Institute for Energy Studies, Elara Securities Research

Sector-wise consumption of gas for India (2014)

0

50

100

150

200

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

(bcm)

China India

India gas consumption grows 1.9x during 2000-14

Decline due to a fall in KG-D6 supply

Residential 20%

Industrial 43%

Power 20%

Transportation

13%

Others 4%

30.1 17.5 13.0

3.0 5.6 10.0

63.8 66.0 62.0

3.1 10.9 15.0

0%

20%

40%

60%

80%

100%

2000 2014 2020 Oil Natural Gas Coal Non-fossil

Industrial, 62%

Power, 24%

Transportation, 7%

CGD which caters to

industries/commercial, 7%

Source: Ministry of Petroleum & Natural Gas, Elara Securities Research


China leagues ahead in LNG use

Source: ENN Energy, a listed China gas utility company, Elara Securities Research

9

LNG refueling station in China

A photograph of a LNG truck

Huge potential for Petronet LNG

LNG used in trucking & ship bunkering in China

One LNG fill is adequate for a 500km run

Payback period of just 10 months in China

LNG trucks operate, although in smaller numbers, in the US, Australia and

Europe; these countries are focusing on large-scale expansions

Unexplored LNG opportunity in India

Source: ENN Energy, a listed China gas utility company, Elara Securities Research

China ~2,500 LNG fuelling stations • ~100,000 LNG vehicles currently • 350,000 LNG vehicles in two years

NIL in India

Source: Elara Securities Research


LNG-powered transportation: country-specific

The US

Source: Marcogas General Assembly, Prague, Elara Securities Research

10

China: ahead of the pack

Started in 1993

~7,000 vehicles running on LNG

~70 LNG stations across the country

Targeting ~30% trucks on LNG by 2020 (for

long-distance transportation)

Australia

Started in 2004

~250 trucks running on LNG

~10 LNG stations across the country

Targeting 5,000 trucks on LNG in the near term

~100,000 heavy duty vehicles running on

LNG

~2,500 LNG stations across the country

Targeting 350,000 vehicles running on LNG in

two years

Europe

LNG Blue Corridor project

14 new LNG stations along four corridors

100 heavy duty vehicles powered by LNG by

2017


Gas – not a cheap story

Price of auto fuel vs CNG in China and India

Source: ENN Energy, Elara Securities Research

11

0.0

0.2

0.4

0.6

0.8

1.0

1.2

China India

Petrol price (USD/lit) CNG price (USD/kg)

Gas prices in China are much higher than that of India

Gas prices in China among the highest in the world; city gate prices are as

high as USD 16-19/mmBtu

Despite this, the transportation sector accounts for 13% of total gas

consumption in China vs a mere 7% in India

China gas companies grew at a market cap CAGR of 16% during 2011-

15 vs 13% during 2000-10

For India, we estimate market cap will grow by 27%

over next one year from the current market cap


China companies shine with rise in gas demand

12

ENN Energy grows 13x in market cap over 2005-14

Source: ENN Energy (2688 HK), an utility firm, Elara Securities Research

China Gas grows 21x in market cap over 2005-14

Source: China Gas (1193 HK), an utility firm, Elara Securities Research

ENN Energy

Industrial consumption: 71% of total sales; the rest is equally divided

between domestic and vehicular consumers

Industrial consumption: grows by 26x over 2005-14

Vehicular consumption (CNG & LNG): grows by 84x albeit on low base

Total volume sold to consumers: grows 20x while market cap by 13x

China Gas

Industrial consumption: 77% of total sales; PNG consumers account for

14% while the rest is vehicular consumption

Industrial consumption: grows by 224x over 2005-14

Vehicular consumption (CNG & LNG): grows 2,424x albeit on low base

Total volume sold to consumers: 216x while the market cap grows 20x

0

15,000

30,000

45,000

60,000

75,000

0

5

10

15

20

25

30

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

(HKD mn) (mmscmd)

Total PNG/Comm/Industrial/refueling sales (mmscmd)

Market Cap (HKD mn)

0

15,000

30,000

45,000

60,000

75,000

0

5

10

15

20

25

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

(HKD mn) (mmscmd)

Total PNG/Comm/Industrial/refueling sales (mmscmd)

Market Cap (HKD mn)

THE INDIA STORY


India: very little for show and tell

The Judiciary leads the way

1998: SC mandates CNG for public transportation in New Delhi

2001-15: Three more states mandate the use of CNG in public transportation

in leading cities

2015: National Green Tribunal calls for a ban on diesel vehicles older than 10

years and petrol vehicles older than 15 years on New Delhi roads

Government follows, with ad-hoc responses

Petrol deregulation in June 2010

Diesel deregulation in October 2014

Domestic gas prices linkage to international prices

Priority to gas for CGD consumption

Drafts CNG marketing guidelines

A motley, long-term vision taking shape

Pledges to cut emissions intensity of GDP by 20-25% by 2020

Launches Air Quality Monitor in 10 cities; plans afoot to expand to 60

cities in the next few years; gather data to enable better policies

Expands trunk pipelines by ~70% to increase access to gas infrastructure

in 4-5 years; beneficiaries: GAIL & GSPL

Expects CGD volume to touch 51mmscmd in 2022 from 15mmscmd

currently; beneficiaries: Indraprastha Gas & Gujarat Gas

Natural gas supply to see a 50% jump through FY18E; several LNG

import terminals have been announced; beneficiary: Petronet LNG

14


India’s skewed state of affairs

15

India has 970 CNG stations; China has ~7,000

Source: Industry, Elara Securities Research

India has 15,000km trunk pipelines; China 40,000km


0

2,000

4,000

6,000

8,000

CNG fuelling stations LNG fuelling stations

China India

India has zero LNG stations

Regulatory boost increases CNG vehicles in India


Transportation: ~7% of total gas in India vs 13% in China


40,000

500,000

17,000 15,340 35,000 11,000 0

200,000

400,000

600,000

Major pipelines (excluding city) (km)

Urban pipeline network (km)

Pipelines planned

China India

65

8

0

20

40

60

80

Consumption in transportation (mmscmd)

(mmscmd)

China India

To hike consumption, India needs policy initiatives

1.8

1.9

2.0

2.1

2.2

2.3

2.4

NG vehicles (mn)

(mn)

China India

China has 100,000 LNG vehicles; India none


Facts, fallacies and foibles of India

Policy mismatch

No new allocation for CGD until 2014: the government states all CGD and

piped natural gas demand via domestic gas allocation; allocation to non-core

sectors could be cut

Land Acquisition Bill yet to be tabled in Parliament: Both Phase-II

evacuation pipeline from Kochi LNG terminal to Mangalore & Bangalore and

Delhi Transport Corporation’s bus depots remain a pipe dream on issues

acquiring land

14-18 approvals needed from different regulatory authorities for laying city

gas pipelines

Pricing woes

Prior to 2014, domestic gas price was fixed at USD 4.2/mmBtu. After

September 2014, the government linked the price to a basket of global gas

prices, which resulted in gas price realization rising by 33% to USD

5.6/mmBtu

Premium for deep & ultra deep water blocks: Production from deep &

ultra deep water projects involves higher expenditure, which requires a price

higher than the current prevailing gas price of USD 5.2/mmBtu

Proportionate supply

Infrastructure boost: ~11,000km of gas trunk pipelines to be added to the

existing ~15,000km network at a capex of ~INR 382bn

Domestic E&P: Monetization of deep & ultra-deep water discoveries under

cloud due to a lack of clarity on gas pricing. The government is likely to come

up with a premium for such fields which would expedite investment in such

blocks

Availability of LNG limited by capacity: current capacity of 25mn tonnes

per annum is yet to be fully operationalized; 10mn tonnes of new capacity is

to be added by FY18E

Pie grows

Petroleum & Natural Gas Regulatory Board drafts guidelines to grant

marketing rights for CNG as transportation fuel, including setting up

CNG stations on highways

The government has completed four rounds of CGD auctions. The

fifth round is currently ongoing. The four rounds had offered 55

geographical areas (GA), out of which only 26 GA were awarded. CGD is

operational only in 12 GA. In the fifth round, bids have been received for 10

GA out of 20 GA

16


India’s huge CGD potential

*Note: excludes 2-wheelers; Disclaimer: map not to scale; Source: Road Transport Yearbook 2011-12, Elara Securities Research

Kerala

Karnataka Andhra Pradesh

Maharashtra

Madhya Pradesh

Rajasthan

Gujarat

Uttar Pradesh

Punjab

Bihar

Orissa

Jharkhand West

Bengal

Sikkim Arunachal Pradesh

Assam

Tripura

Meghalaya

Mizoram

Manipur

Nagaland

Goa

Pondicherry

Uttaranchal

Jammu &

Kashmir

Haryana

Himachal Pradesh

Delhi

Chhattisgarh

Cities already with CGD presence

Cities without any CGD

Telangana

Agra 89

Ahmedabad 423

Allahabad 89

Amritsar 135

Aurangabad 43

Bengaluru 2,000

Bhopal 151

Chandigarh 321

Chennai 1,059

Coimbatore 219

Delhi 2,452

Dhanbad 165

Durg Bhilai 49

Ghaziabad 137

Gr.Mumbai 856

Gwalior 72

Hyderabad 961

Indore 281

Jabalpur 85

Jaipur 396

Jamshedpur 211

Jodhpur 165

Kanpur 140

Kochi 201

Kolkata 293

Kota 103

Lucknow 221

Ludhiana 255

Tamil Nadu

Madurai 104

Meerut 65

Nagpur 162 Nashik

78

Patna 181

Pune 484

Raipur 92

Rajkot 120

Ranchi 278

Srinagar 108

Surat 229

Tiruchirapalli 79

Varanasi 89

Vijayawada 73

Vadodara 169

Visakhapatnam 145

~50 cities in India with population of over 1mn (Census 2011)

Expansion across adjacent cities could lead to a sharp increase in demand

17

All CGD companies to benefit

Vehicular population* (‘000) in cities with 1mn+ population


India’s energy mix in need of a booster shot

India (2000) India (2014)

World (2014)

Oil 28%

Natural Gas 7% Coal

57%

Nuclear Energy 1%

Hydro electric 5%

Renewables 2%

Oil 33%

Natural Gas 8%

Coal 56%

Nuclear Energy 1%

Hydro electric 2%

Oil 33%

Natural Gas 24%

Coal 30%

Nuclear Energy 4%

Hydro electric 7%

Renewables 2%

Natural gas: constitutes 24% of primary energy mix globally in 2014

India’s primary energy still coal heavy: gas contributing only 7% in

2014, down 1.5% YoY, vs 8.0% in 2000

Infrastructure woes, supply issues and regulatory hurdles: impede

India’s transition into a gas economy

Source: BP Statistical Review, 2000, Elara Securities Research Source: BP Statistical Review, 2015, Elara Securities Research

Source: BP Statistical Review, 2015, Elara Securities Research

18


Huge demand – 60% rise in the next 3-4 years

19

Demand to rise from 120mmscmd to 190mmscmd

Source: Ministry of Petroleum & Natural Gas, Elara Securities Estimate

0

50

100

150

200

H1FY15A FY15E FY16E FY17E FY18E FY19E

(mmscmd)

Fertilizer Power

CGD Industrial

Petrochem/Ref/Int Consump Sponge Iron/Steel/Others

Out of ~120mmscmd of total gas consumption currently,

~70mmscmd consumed by price-sensitive power & fertilizer sectors

Power: Although the power sector could consume ~100mmscmd, we

expect demand to improve only by 10-15mmscmd led by the recent power

sector reforms, due to its inability to pass on higher prices to end-consumers

Fertilizer: The government has given the nod to convert plants of MFL, MCFL

& SPIC from naphtha to gas, which would result in 4.2mmscmd of gas

demand; existing expansion & revival of closed plants would

consume an additional 14.4mmscmd

Petrochem: BCPL, Pata expansion and OPaL are key petrochem plants, which

would consume ~10mmscmd

CGD: The government forecast CGD demand to rise to 51.0mmscmd by 2022

at a CAGR of 19% from 16.5mmscmd; our analysis suggests a 10% demand

CAGR, resulting in demand rising to 24mmscmd by FY19E

We expect demand to rise by 60% over the next 3-4 years, from the

current ~120mmscmd to ~190mmscmd


Gas muscling in on alternate industrial fuels’ terrain

Fuel oil consumption on a secular decline

Source: Petroleum Planning & Analysis Cell (PPAC), Elara Securities Research

0

5

10

15

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

(mn tonnes)

Source: Platts, Bloomberg, Elara Securities Research

Spot LNG declines sharply in the past year

0

5

10

15

20

25

Jan-1

2

Mar-

12

May-1

2

Jul-12

Sep-1

2

Nov-1

2

Jan-1

3

Mar-

13

May-1

3

Jul-13

Sep-1

3

Nov-1

3

Jan-1

4

Mar-

14

May-1

4

Jul-14

Sep-1

4

Nov-1

4

Jan-1

5

Mar-

15

May-1

5

(USD/mmBtu)

Spot LNG Fuel oil

After hovering ~USD 15/mmBtu for over two

years, spot LNG prices have fallen to USD 7/mmBtu

20

3.8

4.5

3.4

3.6

3.8

4.0

4.2

4.4

4.6

Net export in FY15 Elimination of F/LSHS production

(mn tonnes) Upcoming cokers would result

in tight demand & supply

Elimination of FO/LSHS production

Tight situation of FO/LSHS supply

Note: LSHS stands for low sulfur heavy stock, Source: PPAC, Elara Securities Research

Tight situation of pet coke supply

Source: PPAC, Elara Securities Research

2.0

8.1

0

2

4

6

8

10

Net import in FY15 Petcoke reduction

(mn tonnes) Pet coke gasifier would result in an

even worse supply situation


LNG – unwritten future; not factored into our assumptions

Source: Wikimedia, Elara Securities Research

Petronet LNG to benefit

Feasibility checks

Existing LNG terminals on the West

Coast make it possible to ply LNG

trucks

Upcoming LNG terminals on the

East Coast could make LNG

trucking possible

Draft marketing guidelines also

propose opening CNG outlets on

highways

Technology

Daimler & Volvo manufacture LNG

trucks

LNG refuelling stations are built by

Cummins & Cryostar

21


Spot LNG prices to remain low – a boon for India

Spot LNG prices halve since FY14, given the supply glut Supply increasing by ~60% of total trade by FY16E

Source: International Gas Union, Elara Securities Estimate Source: Platts, Bloomberg, Elara Securities Research

5 7 9 11 13 15 17 19 21

30

50

70

90

110

130

Apr-

11

Jul-11

Oct

-11

Jan-1

2

Apr-

12

Jul-12

Oct

-12

Jan-1

3

Apr-

13

Jul-13

Oct

-13

Jan-1

4

Apr-

14

Jul-14

Oct

-14

Jan-1

5

Apr-

15

(USD/mmBtu) (USD/bbl)

Brent-LHS Platts JKM-RHS

Spot LNG prices decline despite a rise in crude price

0

100

200

300

400

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016E

(mn tonnes)

Liquefaction Capacity Actual Trade

Huge capacity addition led by Australia

Emergence of new demand centres amid low LNG prices; restart of nuclear reactors in Japan cause for concern

3

4

5

6

7

8

9

Jan-0

0

Oct

-00

Jul-01

Apr-

02

Jan-0

3

Oct

-03

Jul-04

Apr-

05

Jan-0

6

Oct

-06

Jul-07

Apr-

08

Jan-0

9

Oct

-09

Jul-10

Apr-

11

Jan-1

2

Oct

-12

Jul-13

Apr-

14

Jan-1

5

(mn tonnes)

Monthly Japan LNG import

18-20mn tonnes pa increase in consumption due to shutdown of nuclear reactors

Start of nuclear reactors in Japan could reduce demand

Source: Bloomberg, Elara Securities Research

South Korea also plans to start nuclear reactors

Source: IGU, Elara Securities Research

20

30

40

50

60

70

2012 2013 2014 2015E 2016E

(%)

Operating rate of gas fired plants

Increasing attractiveness of alternate fuels to drive utilization lower of gas-fired plants

22


Rasgas linkage a medium-term problem

At current prices, long-term Rasgas LNG is expected to decline to USD 9.0/mmBtu by FY18E-end

Note: JCC means Japanese Crude Cocktail; Source: Platts, Bloomberg, Elara Securities Research

0

5

10

15

20

25

40

50

60

70

80

90

100

110

120

130

140

Jan-0

9

Apr-

09

Jul-09

Oct

-09

Jan-1

0

Apr-

10

Jul-10

Oct

-10

Jan-1

1

Apr-

11

Jul-11

Oct

-11

Jan-1

2

Apr-

12

Jul-12

Oct

-12

Jan-1

3

Apr-

13

Jul-13

Oct

-13

Jan-1

4

Apr-

14

Jul-14

Oct

-14

Jan-1

5

Apr-

15

Jul-15

Oct

-15

Jan-1

6

Apr-

16

Jul-16

Oct

-16

Jan-1

7

Apr-

17

Jul-17

Oct

-17

Jan-1

8


JCC LNG FOB-RHS FO-RHS

Petronet benefits due to JCC higher than the five-year average

JCC falls well below the five-year average; even long-term LNG converges with FO by FY18-end

23


Supply – 20mn tonnes pa (50% rise in gas) by FY18E

Disclaimer: Map not to scale Source: Petronet LNG, Shell Hazira, GSPC LNG, GAIL, H -Energy, Elara Securities Research

Long-term LNG contracts (mn tonnes pa)

GAIL

Cheniere Energy 3.5

Cove Point 2.3

Gazprom – Russia 2.5

IOC

Progress Energy 1.2

Mitsubishi 0.7

Petronet LNG

Gorgon 1.44

Firm contracts signed up 11.64

0

50

100

150

200

250

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16E

FY17E

FY18E

(mmscmd)

Domestic R-LNG

Addition of operational volume through Dahej - 5mn tonnes pa Dabhol - 5mn tonnes pa Kochi - 5mn tonnes pa GSPC LNG - 5mn tonnes pa

Tamil Nadu

Kerala

Karnataka

Andhra Pradesh

Maharashtra

Madhya Pradesh

Rajasthan

Gujarat

Uttar Pradesh

Punjab

Bihar

Orissa

Jharkhand West

Bengal

Sikkim Arunachal Pradesh

Assam

Tripura

Meghalaya

Mizoram

Manipur

Nagaland

Goa

Pondicherry

Uttaranchal

Jammu &

Kashmir

Haryana

Himachal Pradesh

Delhi

Chhattisgarh

Existing

Announced

Telangana

MPT- Mumbai 5.0

Petronet LNG – Gangavaram 5.0

Shell/GAIL – Kakinada 3.5

H-Energy - Jaigad 8.0

ONGC – Mangalore 5.0

IOC –Ennore 5.0

IOC –Dhamra 5.0

VGS – Kakinada 3.5

GAIL – Paradip 3.5

H-Energy Digha 6.0

LNG Bharat – Nellore 5.0

HPCL and SP – Chhara 5.0

Swan Energy – Jaffrabad 4.5

Dahej

Dabhol

Hazira

Kochi 5.0

Mundra 5.0

Under construction

Petronet LNG, GAIL, GSPL & CGD companies

to benefit

Domestic gas production is unlikely to ramp up

beyond 100mmscmd by FY18E. As a result, the

supply gap needs to be bridged by importing LNG

24


Access – 11,431km of trunk pipelines under construction

Source: Petroleum Planning Analysis & Coordination (FY15), Elara Securities Research

Additional 1,200km of pipeline to be awarded by Petroleum and Natural Gas Regulatory Board

2,500km of pipeline to be developed through public private partnership (PPP) and viability gap funding

Existing ~15,000km of trunk pipeline leaves a large part of India without gas infrastructure

~11,000km of pipeline under various stages of construction entailing a capex of ~INR 382bn

25

GAIL & Gujarat State Petronet to benefit


Key risks to our call

In the five CGD auction rounds which had 55 cities on offer, only 26 cities have been awarded so far and CGD is operational only in 12 areas.

Any delay in auctioning and awarding would prevent CGD from being established across the country

In the past, PNGRB has given orders fixing tariff of IGL, cuts in tariff on transmission pipeline of GAIL, GSPL with the retrospective effect),

which can dis-incentivize entities from investing and expanding

Crude prices have crashed more than 50% over the past year. They currently hover around ~USD 50/bbl. With crude prices remaining low,

it can dis-incentivize customers to either not convert to natural gas or switch back to alternate fuels

The Dahej 5mn tonnes pa expansion is expected to be completed by December 2016. GSPC LNG’s 5mn tonnes pa Mundra terminal is

expected to be commissioned by March 2017. With the domestic supply not expected to increase in the near term, any delay in these two

could be a setback to India’s gas story

26


Global peer valuation (consensus)

Note: Gujarat Gas details not available; Source: Bloomberg, Elara Securities Estimate

EV/EBITDA (x) P/BV (x) P/E (x)

FY16E / CY15E FY17E / CY16E FY16E / CY15E FY17E / CY16E FY16E / CY15E FY17E / CY16E

Indraprastha Gas 7.7 7.2 2.8 2.4 14.1 12.9

Gujarat State Petronet 7.5 6.9 1.8 1.6 14.1 12.6

Gail India 9.0 7.7 1.1 1.0 12.8 10.6

Petronet LNG 9.6 8.0 2.2 1.9 16.2 13.0

India average 8.5 7.5 1.9 1.7 14.3 12.3

Binhai Investment Company 9.6 8.1 2.2 1.7 7.6 6.1

China Gas Holdings 11.6 10.1 2.7 2.3 14.3 12.1

Hong Kong & China Gas 20.0 18.6 3.0 2.8 22.8 21.1

Towngas China 12.7 11.4 1.0 0.9 11.2 10.1

China Resources Gas Group 9.2 7.9 2.3 2.0 14.3 12.3

Enn Energy Holdings 8.7 7.7 2.4 2.1 15.4 13.3

China average 12.0 10.7 2.3 2.0 14.3 12.5

Tokyo Gas 7.4 8.2 1.5 1.4 14.3 19.4

Osaka Gas 7.1 8.8 1.1 1.1 13.2 17.6

Toho Gas 7.1 8.5 1.4 1.4 17.3 24.5

Korea Gas 12.0 11.3 0.4 0.4 7.2 6.6

Sempra Energy 11.6 10.6 2.2 2.0 21.2 19.7

New Jersey Resources 11.3 13.2 2.6 2.9 16.5 18.3

Piedmont Natural Gas 11.6 10.5 2.2 2.1 21.1 19.1

Northwest Natural Gas 10.0 8.9 1.7 1.6 22.3 20.4

Atmos Energy 9.3 8.7 1.8 1.7 18.4 17.2

South Jersey Industries 12.4 12.1 2.0 1.9 15.9 14.4

Duke Energy 10.1 9.6 1.3 1.3 16.6 15.8

Cms Energy 9.4 8.9 2.5 2.4 19.0 17.8

Centerpoint Energy 8.5 8.1 2.0 1.8 19.0 17.6

Western average 10.5 10.3 2.1 2.1 17.8 17.1

World average 10.0 9.6 2.0 1.8 15.8 15.4

27

India gas utilities are trading at much lower multiples considering their growth potential

Gas utilities in Western countries are trading at an average P/E of 18x

China gas utilities are trading at an average P/E of 14x

The world average for gas utilities is at 16x P/E


Valuation matrix – P/E vs EPS growth

India gas firms offer attractive valuation compared to global peers (2015)

Source: Bloomberg, Elara Securities Estimate

• Emphasis on greener fuels would lead to higher

growth trajectory for India firms than global peers during

FY15-18

• India companies at lower P/E

• Structural reforms, low domestic & spot LNG prices and

high latent demand position India firms in a

structurally long-term bull cycle

28

Gujarat Gas

IGL GSPL GAIL

Petronet LNG

China Gas

HK & China Gas

Towngas China

China Resources Gas

ENN Energy

Korea Gas

Southwest Gas

Sempra Energy

New Jersey Resources

Piedmont Natural Gas

Northwest Natural Gas

Atmos Energy

South Jersey Ind

Duke Energy

Cms Energy

National Grid

Enagas SA

5

10

15

20

25

0 5 10 15 20 25 30

P/E

(x)

EPS growth (%)


Valuation matrix – P/BV vs ROE

India gas companies are available at reasonable valuation vs global peers (2015)

Source: Bloomberg, Elara Securities Estimate

29

Gujarat Gas

IGL

GSPL

GAIL

Petronet LNG

Binhai China Gas

Hong Kong & China Gas

Towngas China

China Resources Gas ENN Energy

Tokyo Gas

Osaka Gas

Toho Gas

Korea Gas

Kyungdong City Gas

Sempra Energy

New Jersey Resources

Piedmont Natural Gas

Northwest Natural Gas

Atmos Energy

South Jersey

Duke Energy

Cms Energy

Centerpoint Energy

National Grid Enagas SA

Snam Spa

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0 5 10 15 20 25 30 35

P/B

V (

x)

ROE (%)

Petronet LNG looks expensive on a FY16E ROE of 12.4%; its ROE would expand to 14.8% in FY18E based on higher capacity


India gas companies set for long-term growth

China companies outperform indices by 100-150% India companies have just mirrored the Nifty

Source: Bloomberg, Elara Securities Research Source: Bloomberg, Elara Securities Research

China firms market cap CAGR at 14.1% over CY06-15

Source: Bloomberg, Elara Securities Research

India gas firms market cap CAGR at 11.6% over CY06-15

Source: IGU, Elara Securities Research

30

140

150

160

170

Relative growth over CY06-15

(%)

Nifty Indian Gas companies

0

50

100

150

200

250

Relative growth over CY06-15

(%)

Hang Seng Shanghai Composite Chinese Gas companies

10.0

10.5

11.0

11.5

12.0

CAGR growth of market cap during CY06-15

(%)

Nifty Indian Gas companies

0

5

10

15

CAGR growth of market cap during CY06-15

(%)

Hang Seng Shanghai Composite Chinese Gas companies


Economics turns favorable

31

0

5

10

15

20

Bus Taxi Car

Saving (INR/km) Payback (months)

2.0

2.5

3.0

3.5

4.0

PNG Industrial FO LSHS

(INR/'000Kcal)

Savings of 7% & 20% over FO & LSHS, respectively

2

3

4

5

6

PNG commercial LPG commercial

(INR/'000Kcal)

Savings of 22% over commercial LPG

Savings of 37-60% in CNG Savings of 7-20% in industrial PNG

Savings of ~22% in commercial PNG

India CGD companies to benefit

Natural gas offers better economics & shorter payback period

With a ~40% linkage to Henry Hub, domestic gas prices unlikely to rise

sharply

Oil prices are volatile and likely to rise, resulting in even better savings

potential

Source: Industry, Elara Securities Research Source: Industry, Elara Securities Research



In a nutshell

32

Source: Elara Securities Research

Key triggers Petronet LNG IGL Gujarat Gas GSPL GAIL

Increase in demand

Increase in LNG supply

Low LNG prices

Low domestic gas prices

Price certainty (domestic gas, deregulation of auto fuels)

Mandatory use of CNG

Land acquisition reform

PETRONET LNG – EBITDA TO JUMP BY ~60% OVER FY15-18E


Petronet LNG

Investment summary

Capacity-led volume growth: Petronet LNG is expanding capacity at Dahej from 10mn tonnes pa to 15mn tonnes pa at a capex of INR 24bn. Expansion is expected to

be commissioned by December 2016. Post expansion, 14.75mn tonnes pa out of 15.00mn tonnes pa is already booked with offtakers.

Rasgas price to converge to FO by FY18-end: At the current crude price, JCC-linked Rasgas price would match FO price by FY18-end, which would make long-term

RLNG once again attractive vs alternative fuels.

Emerging from short-term pain: The company has suffered due to problems in offtake of high-cost LNG. As the price of high-cost Rasgas converges, volume would

increase

Kochi terminal utilization: Even without Phase-II pipeline, utilization would increase to ~20% by FY18E

Improved financials: EBITDA to jump by ~60% during FY15-18E

Valuation

We value the company based on a DCF method (at a WACC of 12% and a terminal growth rate of 2%) and arrive at a target price of INR 242. We recommend Buy.

Key risks

Downside risks include no resolution on Rasgas long-term volume offtake and delay in Dahej expansion

Key Financials

Note: pricing as on 3 September 2015; Source: Company, Elara Securities Estimate

CMP: INR 177 TP: INR 242 Upside: 37%

PLNG IN Mcap: USD 2.07bn Buy

34

YE March

Revenue (INR mn)

YoY (%)

EBITDA (INR mn)

EBITDA margin (%)

Adj PAT (INR mn)

YoY (%)

Fully DEPS (INR)

ROE (%)

ROCE (%)

P/E (x)

EV/EBITDA (x)

FY15 395,010 4.6 14,390 3.6 8,825 24.0 11.8 14.7 12.6 15.0 10.6

FY16E 361,854 (8.4) 14,431 4.0 8,258 (6.4) 11.0 12.4 10.4 16.1 10.6

FY17E 385,166 6.4 17,049 4.4 10,202 23.5 13.6 13.5 11.0 13.0 9.0

FY18E 709,520 84.2 22,474 3.2 14,170 38.9 18.9 14.8 14.6 9.4 6.8


PLNG: capacity-led growth

Even Rasgas price converges by FY18E

Source: Company, Elara Securities Research Source: Company, Elara Securities Research

Dahej is fully booked post expansion in December 2016

0

5

10

15

20

25

Jan-0

9

Jun-0

9

Nov-0

9

Apr-

10

Sep-1

0

Feb-1

1

Jul-11

Dec-

11

May-1

2

Oct

-12

Mar-

13

Aug-1

3

Jan-1

4

Jun-1

4

Nov-1

4

Apr-

15

Sep-1

5

Feb-1

6

Jul-16

Dec-

16

May-1

7

Oct

-17

Mar-

18

(USD/mmBtu)

LNG FOB Spot LNG FO

FO prices are likely to rise; even at current prices, Rasgas price would match FO by FY18-end

0

4

8

12

16

Booked fully Spot/short-term Booked fully Spot/short-term

Existing Post expansion in Dec 2016

Capacity (mn tonnes pa)

Existing 7.5mn tonnes pa GAIL: 4.5mn tonnes pa IOCL: 2.25mn tonnes pa BPCL: 0.75mn tonnes pa

Additional contracts GSPC: 2.25mn tonnes pa GAIL: 2.5mn tonnes pa IOCL: 1.5mn tonnes pa BPCL: 1mn tonnes pa

Dahej plans

Capacity-led volume expansion of 50% at Dahej by FY18E

Almost all Dahej capacity is already booked with offtakers

Low spot LNG prices may lead to higher utilization

Plans to further expand Dahej terminal by 2.5mn tonnes pa

Short-term pain

Current LT Rasgas volume of 7.5mn tonnes pa linked to five-year

average JCC

While spot LNG prices fell to ~USD 7-8/mmBtu, long-term Rasgas

quantity remains at ~USD 13-14/mmBtu, finding few offtakers

Back-to-back contract for this quantity with GAIL, IOCL & BPCL

35


PLNG: emerging from short-term pain

No outperformance over the Nifty

Source: Capitaline, Elara Securities Research

80

90

100

110

120

130

Jul-14

Jul-14

Aug-1

4

Sep-1

4

Sep-1

4

Oct

-14

Nov-1

4

Nov-1

4

Dec-

14

Jan-1

5

Jan-1

5

Feb-1

5

Mar-

15

Apr-

15

Apr-

15

May-1

5

Jun-1

5

Jun-1

5

PLNG NIFTY

Lower utlilzation at Kochi terminal as well as lower offtake of high-priced Rasgas volume results in underperformance

High-priced Rasgas volume finds few takers

Source: Company, Elara Securities Research

Short-term & spot volume gets affected adversely


Low utilization of the Dahej terminal


50

60

70

80

90

100

110

1Q

FY12

2Q

FY12

3Q

FY12

4Q

FY12

1Q

FY13

2Q

FY13

3Q

FY13

4Q

FY13

1Q

FY14

2Q

FY14

3Q

FY14

4Q

FY14

1Q

FY15

2Q

FY15

3Q

FY15

4Q

FY15

1Q

FY16

(Tbtu)

Sales of long term Rasgas volumes

Inability of offtakers to place high-priced Rasgas volume

0

5

10

15

20

25

30

35

1Q

FY12

2Q

FY12

3Q

FY12

4Q

FY12

1Q

FY13

2Q

FY13

3Q

FY13

4Q

FY13

1Q

FY14

2Q

FY14

3Q

FY14

4Q

FY14

1Q

FY15

2Q

FY15

3Q

FY15

4Q

FY15

1Q

FY16

(Tbtu)

High-priced Rasgas contract leaves little room for spot and short-term volume

60%

80%

100%

120%

1Q

FY12

2Q

FY12

3Q

FY12

4Q

FY12

1Q

FY13

2Q

FY13

3Q

FY13

4Q

FY13

1Q

FY14

2Q

FY14

3Q

FY14

4Q

FY14

1Q

FY15

2Q

FY15

3Q

FY15

4Q

FY15

1Q

FY16

Lower volume affects utilization

36


PLNG: Kochi – rise in uptake from 2016-end without pipeline

Kochi refinery expansion would add to volume Kochi Phase-II pipeline to commence construction soon

Source: Company, Elara Securities Research Source: Company, Elara Securities Estimate

0

5

10

15

20

0

1

2

3

4

FY15 FY18E

(%) (mmscmd)

Kochi refinery gas consumption Utilization (%)

Base case utilization of 2% results in EPS of INR 18.9 & RoE of 14.8% At ~20% utilization, EPS & RoE would rise to INR 21.9 & 16.9% respectively

Kochi refinery is currently taking ~0.6mmscmd from Kochi

terminal

Once the expansion of Kochi refinery is completed by May 2016, it

would offtake ~3.0mmscmd from Kochi terminal

Even without completion of Phase-II pipeline, utilization would

rise to ~20% in FY18E

Petronet has been using Kochi terminal for reloading,

resulting in sales of INR 600mn in Q4FY15 & INR 500mn in

Q1FY16

Turns cash profit for the first time in Q1FY16

Recent news reports state work on Phase-II pipeline may restart

We assume a 50% utilization of Kochi in FY19E; completion of

Phase-II pipeline by GAIL would result in much higher utilization

37


PLNG: EBITDA to jump by ~60% during FY15-18E

EBITDA to jump by ~60% during FY15-18E EPS to jump by ~60% during FY15-18E

Source: Company, Elara Securities Estimate Source: Company, Elara Securities Estimate

Improvement in return ratios

Source: Company, Elara Securities Estimate

400

500

600

700

800

900

0

5,000

10,000

15,000

20,000

25,000

FY13 FY14 FY15 FY16E FY17E FY18E

(mmBtu) (INR mn)

Total vol EBITDA

Dahej expansion from 10mn tonnes pa to 15mn tonnes pa

(60)

(40)

(20)

0

20

40

60

8

10

12

14

16

18

20


(%)

(INR)

Diluted EPS (INR) Adj EPS Growth (%)

High marketing margin on spot and short-term cargo

8

13

18

23

28


(%)

ROE (%) ROCE (%)

High marketing margin on spot & short-term cargo

We assume a meagre 2% utilization until FY18E. Even without Phase-II

pipeline, expansion of Kochi refinery would take utilization to ~20%,

resulting in upside to our estimates

Petronet and other stakeholders have negotiated deferment of 32% of

contracted quantity for CY15, nuances of which would emerge by CY15-

end. Deferment would help in hiking low-priced spot volume in short term

Petronet has been successfully generating revenue from reloading at Kochi,

which we have not taken into consideration

Strong positive triggers

38


PLNG: assumptions & valuation

Assumptions for volume growth


Valuation: DCF-based target price of INR 242

Tbtu FY14 FY15 FY16E FY17E FY18E FY19E FY20E

Total Regas sales volume 440 422 398 440 785 910 1,014

-Dahej

Long-term sales 374 344 360 390 767 767 767

Short-term/spot 62 72 33 46 13 13 13

-Kochi 3 5 6 4 5 130 234

Regas 54 105 123 117 0 0 0

(INR mn) FY16E FY17E FY18E FY19E FY20E

PAT including div/FBT 8,258 10,202 14,170 20,036 23,520

Depreciation 3,431 3,527 3,979 5,760 5,885

Change in net working capital 7,981 13 (416) 943 664

Capex (10,000) (10,000) (5,000) (5,000) (5,000)

FCFF 9,669 3,742 12,732 21,739 25,069

NPV 48,719

Terminal growth rate (%) 2.0%

TV 145,093

Enterprise value 193,812

Net debt 12,553

Equity value 181,259

Target price 242

Source: Elara Securities Research Estimate

39

Meaningful utilization of Kochi

terminal assumed four years

away. The company board has

approved further expansion at

Dahej to 17.5mn tonnes pa,

which has not been considered

while arriving at our valuation

Expansion of Dahej terminal to

15mn tonnes pa to be

completed by December 2016,

resulting in higher volume from

FY18. In addition, 98% of

capacity is tied up, derisking the

business model

Capex phase over by FY18,

resulting in improved FCFF


PLNG: key financials

40

Income Statement (INR mn) FY15 FY16E FY17E FY18E

Net operating income 395,010 361,854 385,166 709,520

EBITDA 14,390 14,431 17,049 22,474

Depreciation 3,154 3,431 3,527 3,979

EBIT 11,236 11,001 13,522 18,495

Interest Cost 2,935 2,382 1,897 1,435

Other Income 1,548 1,522 1,798 1,584

PBT 9,849 10,140 13,423 18,644

Less: Taxation 1,024 1,882 3,222 4,475

Effective Tax Rate (%) 10.4 18.6 24.0 24.0

PAT 8,825 8,258 10,202 14,170

Balance Sheet (INR mn) FY15 FY16E FY17E FY18E

Equity Capital 7,500 7,500 7,500 7,500

Reserves 49,386 55,519 62,856 73,047

Borrowings 23,738 29,200 25,000 16,000

Deferred taxes 7,270 7,270 7,270 7,270

Long term liability 9,000 9,000 9,000 9,000

Total Liabilities 96,894 108,489 111,626 112,817

Fixed Assets 76,895 83,464 89,938 90,959

Investments 900 900 900 900

Inventories 8,826 9,518 10,085 18,823

Debtors 13,428 15,862 16,884 31,102

Cash 3,641 16,647 13,324 13,077

Loans & Advances 7,493 7,511 7,977 8,079

Other Current Assets 4 140 140 140

Net Current Assets 19,100 24,124 20,788 20,958

Total Assets 96,894 108,489 111,626 112,817

Cash Flow Statement (INR mn) FY15 FY16E FY17E FY18E

Operating cash flow 6,440 19,669 13,742 17,732

Capex (8,599) (10,000) (10,000) (5,000)

Free cash flow to firm (2,159) 9,669 3,742 12,732

Investing cash flow (8,100) (10,000) (10,000) (5,000)

Financing cash flow (7,027) 3,336 (7,065) (12,979)

Net change in cash (8,686) 13,006 (3,323) (247)

Opening cash 12,327 3,641 16,647 13,324

Closing cash 3,641 16,647 13,324 13,077

Ratio Analysis FY15 FY16E FY17E FY18E

Income Statement Ratios (%)

Revenue Growth 4.6 (8.4) 6.4 84.2

EBITDA Growth (4.0) 0.3 18.1 31.8

PAT Growth 24.0 (6.4) 23.5 38.9

EBITDAM 3.6 4.0 4.4 3.2

Net Margin 2.2 2.3 2.6 2.0

Return & Liquity Ratios

Int/PBIT 0.3 0.2 0.1 0.1

Net Debt/Equity 0.4 0.2 0.2 0.0

ROE (%) 14.7 12.4 13.5 14.8

ROCE (%) 12.6 10.4 11.0 14.6

Per Share Data & Valuation Ratios

Diluted EPS (INR) 11.8 11.0 13.6 18.9

Adj EPS Growth (%) 24.0 (6.4) 23.5 38.9

Book Value (INR/share) 75.8 84.0 93.8 107.4

DPS (INR) 2.0 2.4 3.3 4.5

P/E (x) 15.0 16.1 13.0 9.4

EV/EBITDA (x) 10.6 10.6 9.0 6.8

Price/Book (x) 2.3 2.1 1.9 1.6

Dividend Yield (%) 1.1 1.4 1.8 2.6


INDRAPRASTHA GAS – RERATING POST COURT ORDER


Indraprastha Gas

Investment summary

Volume CAGR of 7% over FY15-18E: we expect CNG volume CAGR of 6% over FY15-18E, with a pickup in conversions to CNG among private cars, addition of buses,

taxis and auto rickshaws. Also, with the addition of ~120,000 PNG domestic consumers annually over the next three years and an arrest in decline of PNG industrial volume

due to benign spot LNG prices, overall volume growth of 7% is expected over FY15-18E

Favorable economics: with domestic prices expected to remain low as well as spot LNG prices to remain benign along with historically demonstrated ability of IGL to pass

on gas cost, we expect EBITDA/scm to remain at ~INR 5

Robust free cashflow: With CGD infrastructure laid across most of Delhi, IGL’s high capex phase is over and will generate free cash flow of INR 16bn over FY16-18E

Valuation

With favourable economics, we believe CNG volume growth is back on track. The availability of low-priced spot R-LNG would aid in improving PNG industrial & commercial

volume. We value the company at 15x FY18E EPS of INR 41.7 and add another INR 18.5 for its investments to arrive at a target price of INR 644. We recommend Buy

Key risks

Downside risks include CNG volume growth not picking up and PNG industrial continuing to decline

Key Financials



IGL IN Mcap: USD 1.00bn Buy

42

YE March

Revenue (INR mn)

YoY (%)

EBITDA (INR mn)

EBITDA margin (%)

Adj PAT (INR mn)

YoY (%)

Fully DEPS (INR)

ROE (%)

ROCE (%)

P/E (x)

EV/EBITDA (x)

FY15 36,810 (6.1) 7,930 21.5 4,377 21.5 31.3 20.9 18.0 15.0 8.2

FY16E 39,745 8.0 8,226 20.7 4,477 2.3 32.0 18.4 16.4 14.6 7.4

FY17E 43,191 8.7 9,141 21.2 5,272 17.8 37.7 18.6 16.2 12.4 6.2

FY18E 45,963 6.4 9,756 21.2 5,835 10.7 41.7 17.9 15.0 11.2 5.3


IGL: CGD volume CAGR of ~7% over FY15-18E


CNG volume CAGR of 6% CAGR over FY15-18E PNG volume CAGR of 10% over FY15-18E

0

5

10

15

20

25

0.0

0.5

1.0

1.5

2.0

2.5

3.0

FY00

FY04

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16E

FY17E

FY18E

(%) (mn kgs per day)

CNG volume Growth (RHS)

(50)

0

50

100

150

0

100

200

300

400

500

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16E

FY17E

FY18E

(%) (mscm)

Volumes (LHS) Growth

CNG 93%

PNG 7%

FY07

CNG 82%

PNG 18%

FY11

CNG 76%

PNG 24%

FY15

CGD volume breakdown

43



IGL: growth drivers for CNG volume

Source: Delhi Regional Transport Office (RTO), Elara Securities Research

Near-term growth drivers

Delhi government plans to deploy ~2,900 buses by December 2016

Out of total 2.6mn private cars in Delhi, only ~20% run on CNG

Autorickshaw numbers pick up from 12,500 in FY14 to 21,650 in FY15

Converted to CNG, 0.52mn

Cars still to be converted to CNG, 2mn

Total private cars are 2.6mn

Only 20% cars in Delhi run on CNG (2014)

Long-term growth drivers

NGT has called for a ban on diesel vehicles older than 10 years and

petrol vehicles older than 15 years to ply on Delhi roads

Delhi government is considering levying taxes on polluting vehicles

Another ~7,900 buses can be added in private bus clusters

Clusters 1 to 9 (current),

1,400 buses

Clusters 1 to 9 (potential),

1,200 buses Clusters 10 to 17 (potential), 6,700 buses

~7,900 buses can be added in private bus clusters

Potential to add another ~7,900 buses (2014)

44

Source: Centre for Science and Environment (CSE), Elara Securities Research


IGL: growth drivers for PNG volume


Source: Platts, Bloomberg Elara Securities Research

Industrial & commercial PNG at ~2% CAGR over FY15-18E

The drop in spot RLNG prices can help arrest PNG industrial &

commercial volume decline

IGL has a 0.44mmscmd sourcing contract for long-term R-LNG. However, it is

sourcing only 0.36mmscmd as on now

IGL is negotiating to replace high-priced, long-term RLNG volume

with short-term & spot volume

Domestic PNG volume at ~19% CAGR over FY15-18E

With infrastructure spread across 67 out of 70 charge areas, IGL can

leverage on its extensive network to expand PNG domestic coverage

Strong domestic customer addition at ~100,000 in FY15, which is

expected to grow to ~120,000 annually over the next three years

5

10

15

20

Apr-

12

Jun-1

2

Aug-1

2

Oct

-12

Dec-

12

Feb-1

3

Apr-

13

Jun-1

3

Aug-1

3

Oct

-13

Dec-

13

Feb-1

4

Apr-

14

Jun-1

4

Aug-1

4

Oct

-14

Dec-

14

Feb-1

5

Apr-

15

Jun-1

5

(USD/mmBtu)

Platts-JKM Fuel oil

0 20,000 40,000 60,000 80,000 100,000 120,000 140,000

0

200,000

400,000

600,000

800,000

1,000,000

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15E

FY16E

FY17E

FY18E

(nos) (nos)

Domestic customers (LHS) Addition (RHS)

Spot RLNG vs fuel oil gap narrowing

Domestic customer addition to pick up

45


IGL: economics in favor of CNG vs alternate fuels

Source: Company, Industry, Elara Securities Research

High savings can help in conversion of private cars Auto rickshaw numbers have already picked up

2.0

2.5

3.0

3.5

4.0

0

20,000

40,000

60,000

80,000

100,000

120,000

FY10 FY11 FY12 FY13 FY14 FY15 Q1FY16

(INR/km) (nos)

Conversions (LHS) Savings (RHS)

1.0

1.2

1.4

1.6

1.8

2.0

0

10,000

20,000

30,000

40,000

FY10 FY11 FY12 FY13 FY14 FY15 Q1FY16

(INR/km) (nos)

Conversions (LHS) Savings (RHS)

CNG volume growth can hit 10% under the right set of conditions

Even if addition of buses

does not take place in the

short term, CNG volume can

still comfortably grow at 7%

(our assumption: 6%)

FY15 addition

Count Mileage

(km/kg) Running

(km) Consumption

(mmscmd) as % of FY15

CNG consumption

Bus (145) 1,500 4.1 150 0.06 2.0

Private cars 41,650 (pvt cars

+ taxis)

30,000 16.7 20 0.04 1.3

Taxis 10,000 20.0 150 0.08 2.8

Autos 21650 20,000 25.0 150 0.13 4.5

0.31 10.7

46

Source: Company, Elara Securities Research Source: Company, Elara Securities Research


IGL: cash flow to improve


Cash flow to improve

Volume-led growth in EBITDA at ~7% CAGR over FY15-18E

PAT CAGR of ~10% during FY15-18E

3.50

3.75

4.00

4.25

4.50

4.75

5.00

6,000

7,000

8,000

9,000

10,000


(mmscmd)

(INR mn)

Volume (RHS) EBITDA

Stable EBITDA/scm at INR 5

3,000

4,000

5,000

6,000

7,000


0

5

10

15

20

25 (INR mn) (%)

PAT Growth (RHS)

5.00

5.25

5.50

5.75

3.50

3.75

4.00

4.25

4.50

4.75

5.00


(INR) (mmscmd)

Volume EBITDA/scm (RHS)

(3,000)

0

3,000

6,000

9,000


(INR mn)

Capex Operational Cash Flow Change in borrowing



47


IGL: valuation

FY14 FY15 FY16E FY17E FY18E

Volume (mmscmd) 3.8 3.8 4.1 4.4 4.7

EBITDA/scm (INR) 5.7 5.7 5.5 5.7 5.7

Assumptions

Target P/E (x) 15

Standalone EPS @ FY18E (INR) 41.7

Valuation of core business(INR) 625

Investments (INR) 18.5

Target Price (INR) 644

Valuation (FY18)

One-year forward P/E chart One-year forward P/BV chart

0

200

400

600

800

Jun-0

7

Dec-

07

Jun-0

8

Dec-

08

Jun-0

9

Dec-

09

Jun-1

0

Dec-

10

Jun-1

1

Dec-

11

Jun-1

2

Dec-

12

Jun-1

3

Dec-

13

Jun-1

4

Dec-

14

Jun-1

5

(INR)

IGL 6x 9x 12x 15x 18x

Adverse ruling by PNGRB led to a sharp fall in the stock price Robust volume growth

results in higher multiple

Favourable ruling by SC leads to re-rating 0

200

400

600

800

1,000

Jun-0

7

Dec-

07

Jun-0

8

Dec-

08

Jun-0

9

Dec-

09

Jun-1

0

Dec-

10

Jun-1

1

Dec-

11

Jun-1

2

Dec-

12

Jun-1

3

Dec-

13

Jun-1

4

Dec-

14

Jun-1

5

(INR)

IGL 1x 2x 3x 4x 5x

The stock has traded above 2x P/BV for past few years


Source: Company, Bloomberg, Elara Securities Estimate Source: Company, Bloomberg, Elara Securities Estimate

Source: Elara Securities Estimate

48


IGL: key financials


49


Net operating income (LHS) 36,810 39,745 43,191 45,963

EBITDA 7,930 8,226 9,141 9,756

Depreciation 1,487 1,641 1,741 1,841

EBIT 6,443 6,585 7,400 7,914

Interest cost 298 140 59 26

Other income 345 237 528 821

PBT 6,490 6,682 7,869 8,709

Less: taxation 2,113 2,205 2,597 2,874

Effective tax rate (%) 32.6 33.0 33.0 33.0

PAT (LHS) 4,377 4,477 5,272 5,835


Equity Capital 1,400 1,400 1,400 1,400

Reserves 19,581 22,912 26,873 31,234

Total Borrowings 1,453 703 203 203

Deferred Taxes 1,272 1,272 1,272 1,272

Others 3,712 4,432 5,152 5,872


Net Block 19,558 19,917 20,176 20,334

CWIP 2,541 2,541 2,541 2,541

Investments 2,909 2,909 2,909 2,909

Current Assets 5,727 9,213 13,507 18,765

Less: Current Liabilities 3,317 3,861 4,232 4,568

Net Working Capital 2,411 5,352 9,275 14,197

Total Assets 27,418 30,718 34,900 39,981


Operating Cash Flow 5,815 7,215 7,229 7,577

Capex (2,010) (2,000) (2,000) (2,000)

Free Cash Flow 3,805 5,215 5,229 5,577

Investing Cash Flow (3,400) (1,763) (1,472) (1,179)

Financing Cash Flow (2,958) (1,873) (1,706) (1,337)

Net Change in Cash (543) 3,579 4,051 5,061

Opening Cash 2,990 2,447 6,026 10,077

Closing Cash 2,447 6,026 10,077 15,138


Income statement ratios (%)

Revenue growth (6.1) 8.0 8.7 6.4

EBITDA growth 1.4 3.7 11.1 6.7

Adj PAT growth (RHS) 21.5 2.3 17.8 10.7

EBITDAM (RHS) 21.5 20.7 21.2 21.2

Adj net margin 11.9 11.3 12.2 12.7

Return & liquidity ratios

Interest Coverage Ratio (x) 21.6 47.0 125.6 299.8

Net debt/Equity (x) (0.0) (0.2) (0.3) (0.5)

ROE (%) 20.9 18.4 18.6 17.9

ROCE (%) 18.0 16.4 16.2 15.0

Per share data & valuation ratios

Adj EPS (INR) 31.3 32.0 37.7 41.7

Adj EPS growth (%) 21.5 2.3 17.8 10.7

BVPS (INR) 150 174 202 233

DPS (INR) 6.0 7.0 8.0 9.0

P/E (x) 15.0 14.6 12.4 11.2

EV/EBITDA (x) 8.2 7.4 6.2 5.3

P/BV (x) 3.1 2.7 2.3 2.0

Dividend Yield (%) 1.3 1.5 1.7 1.9

GUJARAT STATE PETRONET – BENEFICIARY OF LNG EXPANSION


Gujarat State Petronet

Investment summary

Transmission volume CAGR of ~12% over FY15-18E: In the near term, ~5.0mmcmd of demand from the power, steel and other sectors will drive transmission

volume along with power and fertilizer sector reforms, aided by benign spot LNG prices. Dahej terminal expansion and GSPC LNG Mundra RLNG commissioning will drive

volume growth in the long term

Stable transmission tariff: With APTEL’s judgement in favour of GSPL as well as the proposed amendments by PNGRB for tariff determination taking into account industry

concerns, we expect stable transmission tariff of ~INR 1,200/tscm

Stake in GGCL a windfall: GSPL’s 29.1% stake in GSPC Gas has translated into a 25.8% stake in Gujarat Gas (GSPC Gas + GGCL) and valued at INR 24.7bn at the CMP

Valuation

With concerns over volume growth and transmission tariff subsiding, we expect an EPS CAGR of ~20% over FY15-18E. We value the company at 10x FY18E EPS of INR 12.7

and add INR 46 for its stake in Gujarat Gas to arrive at a target price of INR 173. We recommend Buy

Key risks

Downside risk includes transmission tariff being revised downwards from the current levels

Key Financials


GUJS IN Mcap: USD 1.04bn Buy

51


YE March

Revenue (INR mn)

YoY (%)

EBITDA (INR mn)

EBITDA margin (%)

Adj PAT (INR mn)

YoY (%)

Fully DEPS (INR)

ROE (%)

ROCE (%)

P/E (x)

EV/EBITDA (x)

FY15 10,646 1.3 9,275 87.5 4,104 (2.1) 7.3 11.3 10.1 16.5 7.8

FY16E 12,057 13.3 10,572 88.0 5,409 31.8 9.6 13.2 11.9 12.5 6.5

FY17E 12,952 7.5 11,357 88.0 6,015 11.2 10.7 13.1 11.9 11.2 5.6

FY18E 14,743 13.9 12,927 87.9 7,177 19.3 12.7 13.7 12.7 9.4 4.5


GSPL: gas grid

Source: GSPL, Elara Securities Research

Gas grid of 2,198km (43mmscmd) in Gujarat GSPL’s cross-country planned pipeline map

GSPL is building cross-country transmission pipelines Mehsana-Bhatinda (2,052

km and 77mmscmd), Bhatinda – Srinagar (725km and 42 mmscmd) and

Mallavaram – Bhilwara (2,035km and 78mmscmd) at a combined project cost of

~INR 140bn

52


GSPL: gas transmission volume to improve

Source: GSPL, Elara Securities Estimate

Volume to pick up in the near term

Power station Current supply

(mmscmd) Requirement at

30% PLF (mmscmd)

Sugen CCP 1.29 1.84

Pipavav CCPP 0.00 1.12

Peguthan 0.23 1.05

Kawas GT 1.31 1.05

Gandhar GT 1.42 1.04

Others 0.18 5.72

4.43 11.81

Near-term drivers

In the near term, ~2.0mmcmd of demand from the power sector, including

captive, ~1.5mmcmd from steel and ~1.0mmcmd from other sectors will

result in incremental gas volume

Power and fertilizer sector reforms are likely to boost demand for natural gas

Soft spot LNG prices should spur a pickup in demand from industrial

customers of CGD companies

Long-term drivers

Dahej terminal expansion by 5.0mn tonnes pa is expected to be completed by

December 2016. GSPC has booked 2.25mn tonnes pa capacity out of 5.0mn

tonnes pa

GSPC LNG 5.0mn tonnes pa Mundra terminal is expected to be commissioned

in Q4FY17. Combined with expansion at Dahej, this gives a long-term visibility

on transmission volume post FY17


Gas-based power plants in Gujarat

53

(30)

(20)

(10)

0

10

20

0

10

20

30

40

FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E

(%) (mmscmd)

Transmission volume Growth (RHS)


GSPL: transmission tariff to remain stable at INR 1,200/tscm

Source: GSPL, Elara Securities Estimate

Tariff determination by PNGRB

In September 2012, PNGRB determined tariff for GSPL pipeline network at

INR 23.99/mmBtu vs the proposed INR 39.55/mmBtu by GSPL

In response GSPL had filed an appeal with The Appellate Tribunal for

Electricity (APTEL) against various provisions of the order

APTEL’s judgment in favor of GSPL

APTEL delivered its judgement in November 2014 and concluded that PNGRB

has been unfair in determining the tariff as it has not taken into consideration

relevant details (inflation rate, utilization levels, system use gas & capex) as

per latest updates.

In APTEL’s view, PNGRB has to reconsider tariff proposals as submitted by

GSPL based on relevant data

Transmission tariff to remain at ~INR 1,200/tscm

Proposed amendment in PNGRB Act in July 2015

PNGRB has proposed to amend PNGRB regulations, which are expected to

take into account actual volume flowing, future capex assumptions and

internal consumption of gas while determining tariff and tariff to be

implemented prospectively.

The proposed changes are favorable for the industry and could lead to higher

tariff for transmission companies

54

0

10

20

30

40

0

500

1,000

1,500


(mmscmd) (tscm)

Volume (RHS) Transmission tariff


GSPL: 25.8% stake in largest CGD entity in the country

GSPC Gas

Source: GSPC Gas, Elara Securities Research

Gujarat Gas

At the CMP, Gujarat Gas the GSPL’s stake stands at INR 24.7bn, while at our

target price of Gujarat Gas, the stake is valued at ~INR 32bn

GSPL 25.8%

GSFC 6.8%

GSPC 28.4%

Minority S/H of GGCL 24.9%

Other Gujarat State PSU

14.1% GSPL

29.1%

GSPC 43.4%

GSFC 6.0%

Other Gujarat State PSU

21.5%

GSPL’s 29.1% stake in GSPC Gas has translated into a 25.8% stake in Gujarat

Gas (GSPC Gas + GGCL), the largest CGD entity in the country

55

Source: Gujarat Gas, Elara Securities Research


0

10

20

30

40

0

4,000

8,000

12,000

16,000


(mmscmd) (INR mn)

Revenue Transmission volume (RHS)

GSPL: PAT CAGR of ~20% during FY15-18E



Revenue CAGR at ~11% over FY15-18E

Revenue to grow at ~11% CAGR over FY15-18E

Robust EBITDA growth and stable EBITDA margin

ROE and ROCE improvement over FY15-18



56

84

86

88

90

92

94

0

3,000

6,000

9,000

12,000

15,000


(%) (INR mn)

EBITDA EBITDA margin (RHS)

(30)

(20)

(10)

0

10

20

30

40

0

2,000

4,000

6,000

8,000


(%) (INR mn)

PAT Growth (RHS)

5

10

15

20

25

30


(%)

ROE ROCE


GSPL: valuation

One-year forward P/BV chart One-year forward PE chart


Volume (mmscmd) 21.1 23.0 26.0 28.0 32.0

Trasnmission tariff (INR/tscm)

1,322 1,227 1,227 1,227 1,227

Assumptions

Target P/E (x) 10

EPS (INR) 12.7

Core business (INR) 127

Investment in Gujarat Gas CGD (INR) 46

Target price (INR) 173

Valuation (FY18E)

0

30

60

90

120

150

Mar-

06

Aug-0

6

Jan-0

7

Jun-0

7

Nov-0

7

Apr-

08

Sep-0

8

Feb-0

9

Jul-09

Dec-

09

May-1

0

Oct

-10

Mar-

11

Aug-1

1

Jan-1

2

Jun-1

2

Nov-1

2

Apr-

13

Sep-1

3

Feb-1

4

Jul-14

Dec-

14

May-1

5

(INR)

GSPL 3x 6x 9x 12x 15x

0

40

80

120

160

200

Mar-

06

Sep-0

6

Mar-

07

Sep-0

7

Mar-

08

Sep-0

8

Mar-

09

Sep-0

9

Mar-

10

Sep-1

0

Mar-

11

Sep-1

1

Mar-

12

Sep-1

2

Mar-

13

Sep-1

3

Mar-

14

Sep-1

4

Mar-

15

(INR)

GSPL 0.5x 1x 1.5x 2x 2.5x

Source: Company, Elara Securities Estimate Source: Elara Securities Estimate


57


GSPL: key financials


58



EBITDA 9,275 10,572 11,357 12,927

Depreciation 2,013 2,127 2,232 2,337

EBIT 7,261 8,446 9,126 10,590

Interest cost 1,178 975 795 615

Other income 520 603 648 737

PBT 6,603 8,073 8,978 10,712

Less: taxation 2,500 2,664 2,963 3,535


PAT (LHS) 4,104 5,409 6,015 7,177


Equity Capital 5,630 5,630 5,630 5,630

Reserves 30,601 35,219 40,444 46,831

Total Borrowings 8,879 7,379 5,879 4,379

Deferred Taxes 4,504 4,504 4,504 4,504

Others


Net Block 31,858 32,231 32,500 32,663

CWIP 6,561 6,561 6,561 6,561

Investments 6,487 6,487 6,487 6,487

Current Assets 10,498 13,366 16,973 21,896


Net Working Capital 4,708 7,453 10,909 15,633

Total Assets 49,613 52,732 56,457 61,344



Capex (2,278) (2,500) (2,500) (2,500)

Free Cash Flow 2,962 5,055 5,570 6,143

Investing Cash Flow (2,915) (2,500) (2,500) (2,500)

Financing Cash Flow (2,800) (2,663) (2,438) (2,169)

Net Change in Cash (475) 2,392 3,132 3,974

Opening Cash 4,710 4,235 6,627 9,759

Closing Cash 4,235 6,627 9,759 13,733



Revenue growth 1.3 13.3 7.5 13.9

EBITDA growth (0.1) 14.0 7.4 13.8

Adj PAT growth (RHS) (2.1) 31.8 11.2 19.3

EBITDA margin 87.5 88.0 88.0 87.9

Adj net margin 38.7 45.0 46.6 48.8


Interest Coverage Ratio (x) 6.2 8.7 11.5 17.2

Net debt/Equity (x) 0.1 0.0 (0.1) (0.2)

ROE (%) 11.3 13.2 13.1 13.7

ROCE (%) 10.1 11.9 11.9 12.7


Adj EPS (INR) 7.3 9.6 10.7 12.7

Adj EPS growth (%) (22.1) (2.1) 31.8 11.2

BVPS (INR) 64 73 82 93

DPS (INR) 1.2 1.2 1.2 1.2

P/E (x) 16.5 12.5 11.2 9.4

EV/EBITDA (x) 7.8 6.5 5.6 4.5

P/BV (x) 1.9 1.7 1.5 1.3

Dividend Yield (%) 1.0 1.0 1.0 1.0

GUJARAT GAS – LARGEST CGD ENTITY IN THE COUNTRY


Gujarat Gas

Investment summary

Largest CGD player: With merger of GGCL and GSPC Gas, the new entity Gujarat Gas, emerges as the largest player in the country

Volume growth CAGR of 10% over FY15-18E: A pickup in industrial activity, softening of spot LNG prices as well as environmental concerns discouraging the use of

alternate polluting fuels are expected to drive consumption of natural gas. With CNG penetration in Gujarat low at ~10%, Gujarat Gas plans to expand aggressively and set

up ~20 new CNG stations every year. We expect overall volume CAGR of 9% over FY15-18E

Favorable sourcing mix: Gujarat Gas has ~30% sourcing from domestic gas, 30% from spot, 25% from medium-term RLNG and only 15% from long-term RLNG

Improving margin: Low domestic gas prices and benign spot LNG prices will help to improve profitability. We expect EBITDA/scm to improve to ~INR 5, from an average

of ~INR 3 seen over FY11-15.

Valuation

With favourable economics as well as an aggressive management intent to chase volume growth, aided by favourable sourcing mix, we expect an EPS CAGR of ~23% over

FY15-18E. We value the company at 15x FY18E EPS of INR 60.7 to arrive at a target price of INR 910. We recommend Buy.

Key risk

Spot LNG prices increasing significantly from the current levels of ~USD 8/mmBtu and sustained low crude oil prices are key downside risks

Key Financials*


GGAS IN Mcap: USD 1.5bn Buy

60

Note: *historical financials of the merged entity Gujarat Gas not available. We here provide financials for GGCL, pricing as on 3 September 2015; Source: Company, Elara Securities Estimate

YE March

Revenue (INR mn)

YoY (%)

EBITDA (INR mn)

EBITDA margin (%)

Adj PAT (INR mn)

YoY (%)

Fully DEPS (INR)

ROE (%)

ROCE (%)

P/E (x)

EV/EBITDA (x)

FY15 25,129 (35.6) 4,326 17.3 3,138 (25.0) 24.5 20.2 14.0 30.5 22.7

FY16E 20,976 (16.5) 4,355 21.0 2,906 (7.4) 22.7 17.0 11.5 32.9 22.5

FY17E 22,627 7.9 4,504 20.1 2,960 1.9 23.1 15.8 10.9 32.3 21.8

FY18E 24,450 8.1 4,932 20.4 3,201 8.1 25.0 15.5 11.0 29.9 19.9


GGCL+ GSPC Gas = largest CGD player

Note: *latest data available for GGCL is from June 2013 and for GSPC Gas is from Annual Report FY14 Source: GGCL, GSPC Gas, Gujarat Gas, Elara Securities Research

GGCL

Surat, Ankleshwar, Bharuch

~2mmscmd

437,959

833

6,792

56

205,000

GSPC Gas

South, Central Gujarat & Saurashtra

~4.2mmscmd

512,165

1,942

1,967

161

90,000

Area of operations

CGD volume

Household customers*

Industrial customers*

Commercial customers*

CNG stations*

CNG vehicles*

Gujarat Gas

Almost two-third of Gujarat

~6.2mmscmd

1,019,170

2,768

11,474

231

300,000

+ =

GGCL

GDNL 74%

Minority S/H 26%

GSPL 29%

GSPC 43%

GSFC 6%

Other Gujarat

State PSU 22%

GSPL 26%

GSFC 7%

GSPC 28%

Minority S/H of GGCL

25%

Other Gujarat

State PSU 14%

+ =

GSPC Gas Gujarat Gas

Minority shareholders of GGCL stand to gain sizably

61

GGCL+ GSPC Gas = largest CGD player


GGAS services two-thirds of Gujarat

Source: GGCL, GSPC Gas, Gujarat Gas, Elara Securities Research

Existing

Announced

Vapi

Gandhinagar

Rajkot

Umargaon

Karjan

Surendranagar

Wadhwan

Sarigam

Halol

Morbi

Bilimora

Nadiad

Thangadh

Gundlav

Palej

Morai

Khambhat

Navsari

Dahej

Surat

Petlad

Valsad

Ankaleshwar Bharuch

Jamnagar

Bhavnagar

Kutch

Hazira

DFC alignment

DMIC influence

Significant geographic presence across the proposed Delhi-Mumbai Industrial Corridor and Dedicated Freight Corridor

62


GGAS: volume growth drivers

PNG volume CAGR of 7% over FY15-18E

Over FY12-14 due to high RLNG prices, industrial consumers have shifted to

alternate fuels, which are expected to come back with softening in spot LNG

prices

We expect a pickup in industrial activity as the economy bottoms out, driving

consumption of natural gas

Environmental concerns discouraging the use of alternate polluting fuels,

such as fuel oil

New GAs (Jamnagar, Bhavnagar, Kutch [West] and Hazira in Gujarat, UT of

Dadra & Nagar Havelli and Thane (excl MGL areas) in Maharashtra will give a

fillip to volume

CNG volume CAGR of ~17% over FY15-18E

With allocation of domestic gas for the CNG segment, Gujarat Gas plans to

expand aggressively and set up ~20 new CNG stations every year

In 2012, Gujarat HC ordered all vehicles (private & public) to be converted to

CNG within a year

Huge potential for faster CNG volume growth (2014)

LMV - goods, 448,958

Buses, 67,546 Taxis, 83,038

LMV - passengers,

561,740

Cars, 1,411,898

Jeeps, 167,991

CNG penetration in Gujarat low at ~10%

Volume over FY12-14 declines due to high RLNG prices

The ceramic

industry at Morbi

stopped off-taking

gas in FY14 after

consistent hikes.

However, it came

back post lower

prices as well as the

SC mandate



63

(20)

(10)

0

10

20

5.0

5.5

6.0

6.5

7.0

7.5

FY11 FY12 FY13 FY14 FY15P

(%) (mmscmd)

Volume Growth (RHS)

Prices touch high of INR 42/scm in FY14 from the lows of INR 26/scm in FY12


GGAS: favorable sourcing mix (FY15)

GGCL

Source: GGCL, GSPC Gas, Gujarat Gas, Elara Securities Research

+ =

GSPC Gas Gujarat Gas

PMT 32%

Cairn 9%

APM 13%

Mid-term LNG 32%

Spot LNG 14%

APM 18%

LT LNG 23%

Mid-term LNG 22%

Spot LNG 37%

PMT 10% Cairn

3%

APM 17%

LT LNG 15%

Mid-term LNG 25%

Spot LNG 30%

Gujarat Gas will have ~30% sourcing from domestic gas, 30% from spot, 25% from medium-term RLNG and only 15% from long-term RLNG. Low spot LNG prices will help to improve profitability

64


GGAS: PAT CAGR of ~34% during FY14-18E

EBITDA/scm to improve to ~INR 5


Volume CAGR of ~9% over FY14-18E

EBITDA CAGR of 28% over FY14-18E

65





(20)

(10)

0

10

20

5

6

7

8

9

10

FY11 FY12 FY13 FY14 FY15P FY16E FY17E FY18E

(%) (mmscmd)

Volume Growth (RHS)

2

3

4

5

6

5

6

7

8

9


(INR) (mmscmd)

Volume EBITDA/scm (RHS)

(20)

0

20

40

60

80

100

0

5,000

10,000

15,000

20,000


(%) (INR mn)

EBITDA Growth (RHS)

(50)

0

50

100

2,000

4,000

6,000

8,000

10,000


(%) (INR mn)

PAT Growth (RHS)


GGAS: valuation

One-year forward P/BV chart One-year forward P/E chart


Volume (mmscmd) 6.0 6.5 6.9 7.6 8.4

EBITDA/scm (INR) 2.7 4.7 5.2 5.2 5.2

Key assumptions

Target P/E (x) 15

EPS (INR) 60.7

Target Price (INR) 910

Valuation (FY18E)

0

150

300

450

600

750

900

Jul-06

Jan-0

7

Jul-07

Jan-0

8

Jul-08

Jan-0

9

Jul-09

Jan-1

0

Jul-10

Jan-1

1

Jul-11

Jan-1

2

Jul-12

Jan-1

3

Jul-13

Jan-1

4

Jul-14

Jan-1

5

(INR)

GGCL 9x 12x 15x 18x 21x

0

150

300

450

600

750

900

Jul-06

Jan-0

7

Jul-07

Jan-0

8

Jul-08

Jan-0

9

Jul-09

Jan-1

0

Jul-10

Jan-1

1

Jul-11

Jan-1

2

Jul-12

Jan-1

3

Jul-13

Jan-1

4

Jul-14

Jan-1

5

(INR)

GGCL 1x 2x 3x 4x 5x


Source: Company, Bloomberg, Elara Securities Estimate, not trading since 26 May 2015

Source: Elara Securities Estimate

Source: Company, Bloomberg, Elara Securities Estimate, not trading since 26 May 2015

66


GGAS: key financials


67



EBITDA 4,326 4,355 4,504 4,932

Depreciation 603 746 813 881

EBIT 3,724 3,609 3,691 4,051

Interest cost 2 0 0 0

Other income 799 750 750 750

PBT 4,520 4,360 4,441 4,802

Less: taxation 1,380 1,452 1,479 1,599


PAT (LHS) 3,140 2,908 2,962 3,203

Minority Interest 2.2 2.2 2.2 2.2

Cons PAT 3,138 2,906 2,960 3,201


Equity Capital 257 257 257 257

Reserves 15,316 16,871 18,481 20,331

Minority Interest 109 111 113 115

Total Borrowings 0 0 0 0

Deferred Taxes 1,344 1,344 1,344 1,344

Others 3,293 3,543 3,793 4,043


Net Block 9,606 10,361 11,048 11,667

CWIP 705 705 705 705

Investments 9,380 9,380 9,380 9,380

Current Assets 2,773 3,266 4,554 6,139


Net Working Capital 627 1,680 2,855 4,338

Total Assets 20,318 22,125 23,987 26,090



Capex (1,290) (1,500) (1,500) (1,500)

Free Cash Flow 1,857 929 1,513 1,801

Investing Cash Flow (3,073) (750) (750) (750)

Financing Cash Flow 248 (1,100) (1,100) (1,100)

Net Change in Cash 322 579 1,163 1,451

Opening Cash 415 737 1,315 2,479

Closing Cash 737 1,315 2,479 3,929



Revenue growth (35.6) (16.5) 7.9 8.1

EBITDA growth (30.4) 0.7 3.4 9.5

Adj PAT growth (RHS) (25.0) (7.4) 1.9 8.1

EBITDAM (RHS) 17.3 21.0 20.1 20.4

Adj net margin 12.6 14.0 13.2 13.2


Interest Coverage Ratio (x) 1,692.5 - - -

Net debt/Equity (x) (0.4) (0.4) (0.4) (0.5)

ROE (%) 20.2 17.0 15.8 15.5

ROCE (%) 14.0 11.5 10.9 11.0


Adj EPS (INR) 24.5 22.7 23.1 25.0

Adj EPS growth (%) (25.0) (7.4) 1.9 8.1

BVPS (INR) 121 134 146 161

DPS (INR) 0.0 9.0 9.0 9.0

P/E (x) 30.5 32.9 32.3 29.9

EV/EBITDA (x) 22.7 22.5 21.8 19.9

P/BV (x) 6.1 5.6 5.1 4.6

Dividend Yield (%) 0.0 1.2 1.2 1.2

GAIL – OVERCOMING NEAR-TERM CONCERNS


GAIL India

Investment summary

Transmission volume CAGR of ~6% over FY15-18E: the resolution of Rasgas long-term offtake, Dahej terminal expansion and higher gas offtake from the Kochi

refinery will drive volume in the near term while commissioning of GSPC LNG Mundra terminal, progress at Kochi pipeline and break-water facility at the Dabhol terminal

could be long-term drivers

Trading volume growth: Contractual volume of 2.5mn tonnes pa from Dahej expansion in December 2016, higher uptake from the Kochi refinery, possible volume from

Dabhol and completion of Kochi pipeline along with benign spot LNG price can aid in trading volume growth

Petchem profitability to improve: If GAIL is able to decrease quantity of high-priced, long-term Rasgas in its petchem feedstock from the current ~85%, profitability

would improve

Valuation

With some visibility on transmission and trading volume growth, we expect an EPS of INR 25.0 in FY18E. We assign 10x FY18E P/E and further add INR 97 for its investments to

arrive at a target price of INR 347. The stock has corrected significantly (~30%) in past three months; hence, we recommend Accumulate

Key risks

Downside risks include no resolution on Rasgas volume offtake and enforcement of take-or-pay obligation

Key Financials

69


GAIL IN Mcap: USD 5.40bn Accumulate


YE March

Revenue (INR mn)

YoY (%)

EBITDA (INR mn)

EBITDA margin (%)

Adj PAT (INR mn)

YoY (%)

Fully DEPS (INR)

ROE (%)

ROCE (%)

P/E (x)

EV/EBITDA (x)

FY15 567,420 (1.3) 46,962 8.3 30,392 (26.6) 24.0 10.8 7.2 12.3 9.4

FY16E 563,373 (0.7) 49,572 8.8 26,020 (14.4) 20.5 8.7 6.5 14.4 8.9

FY17E 639,735 13.6 52,913 8.3 29,313 12.7 23.1 9.2 6.7 12.8 8.4

FY18E 692,059 8.2 56,720 8.2 31,665 8.0 25.0 9.4 7.0 11.8 7.8


GAIL: transmission volume, tariff to increase by FY18

Growth in transmission volume by FY18 We build in a 5% increase in tariff from FY16E

Volume CAGR of ~6% over FY15-18E


80

90

100

110

120


(mmscmd)

Gas transmission

Decline in KG-D6 followed by decline in

RLNG volume

Normalization of Andhra Pradesh pipeline which had fire incident, rise in RLNG volume

Petronet has deferred offtake of 32% of the contracted quantity in CY15.

Nuances of this would be clear only towards CY15-end

Higher offtake from Kochi refinery in May 2016 would result in growth of

transmission volume from 0.6mmscmd to 3.0mmscmd

Dahej expansion would result in an increase of 9.5mmscmd in FY18E

Progress in Dabhol breakwater facility as well as Kochi Phase-II pipeline

could be additional triggers

Upside to transmission tariff

20

24

28

32

36


(INR/mmBtu)

NG transmission tariff


Recent favourable judgement of APTEL in GSPL vs PNGRB suggests there

could be an upward revision in transmission of GAIL

Draft PNGRB guidelines also suggest favourable volume divisor from the

sixth year of operations

We estimate a 5% change in transmission tariff will change FY16E EBITDA

by 3%

70


GAIL: trading volume to increase

Low spot LNG prices to aid in trading volume Trading volume CAGR to increase by 4% over FY15-18E


GAIL has contracted 2.5mn tonnes pa from Dahej expansion in December

2016. This itself would result in a ~13% increase in trading volume over

FY15

Higher uptake from Kochi refinery, possible volume from Dabhol and

completion of Phase-II Kochi pipeline could lead to additional volume

Deferment of long-term Rasgas quantity also would increase sale of spot

cargo

65

70

75

80

85

90


(mmscmd)

NG sales

Spot LNG prices have fallen from ~USD 20/mmBtu in early 2014 to USD 7-

8/mmBtu, led by the decline in oil prices, increased LNG supply and tepid

growth in LNG demand

LNG demand is likely to decline further, led by the start of Japan and South

Korea nuclear reactors while supply waves from Australia, the US and Africa

are expected to inundate the market

We expect spot LNG prices to remain low in the long run, thereby aiding

growth in GAIL’s trading volume

5

9

13

17

21

30

60

90

120

150

Apr-

11

Jul-11

Oct

-11

Jan-1

2

Apr-

12

Jul-12

Oct

-12

Jan-1

3

Apr-

13

Jul-13

Oct

-13

Jan-1

4

Apr-

14

Jul-14

Oct

-14

Jan-1

5

Apr-

15


Brent-LHS Platts JKM-RHS

Spot LNG prices decline despite a rise in crude price

Source: Platts, Elara Securities Research

71


GAIL: petchem, LPG & LHC profitability to improve

Possible upside is significant Petchem suffers from high-cost Rasgas LNG


Currently, ~85% of feedstock for petchem is long-term Rasgas quantity.

Since petchem realization has fallen while Rasgas LNG price remains high,

the petchem segment has seen gross margin contraction

If GAIL is able to decrease the quantity of long-term Rasgas in its petchem

feedstock, profitability would improve

Source: Platts, Elara Securities Estimate

(4,000)

(2,000)

0

2,000

4,000

6,000

1Q

FY11

2Q

FY11

3Q

FY11

4Q

FY11

1Q

FY12

2Q

FY12

3Q

FY12

4Q

FY12

1Q

FY13

2Q

FY13

3Q

FY13

4Q

FY13

1Q

FY14

2Q

FY14

3Q

FY14

4Q

FY14

1Q

FY15

2Q

FY15

3Q

FY15

4Q

FY15

1Q

FY16

(INR mn)

Petchem gross margin

LPG & LHC profitability improves

(5,000)

0

5,000

10,000

1Q

FY11

2Q

FY11

3Q

FY11

4Q

FY11

1Q

FY12

2Q

FY12

3Q

FY12

4Q

FY12

1Q

FY13

2Q

FY13

3Q

FY13

4Q

FY13

1Q

FY14

2Q

FY14

3Q

FY14

4Q

FY14

1Q

FY15

2Q

FY15

3Q

FY15

4Q

FY15

1Q

FY16

(INR mn)

LPG/LHC gross margin


72

4,240

4,280

4,320

4,360

4,400

FY16E FY17E

(INR mn)

Change in Petchem/LPG/LHC EBITDA due to USD 1/mmBtu change in gas cost


GAIL: financials to show improvement

Return ratios with ROE of ~9% and ROCE of ~7% EBITDA growth of ~6% CAGR over FY15-18E




EPS to be INR 25 in FY18E

We estimate a moderate improvement in EBITDA and EPS. However, we

envisage positive triggers, such as possible increase in transmission &

trading volume and reduction in gas cost for petchem, which could give

potential uptick for the stock

73

(40)

(20)

0

20

0

20,000

40,000

60,000

80,000


(%) (INR mn)

EBITDA EBITDA growth (%)-RHS

15

20

25

30

35


(INR)

0

2

4

6

8

10

12

FY15 FY16E FY17E FY18E ROE (%) ROCE (%)


GAIL: valuation


Source: Company, Elara Securities Estimate Source: Elara Securities Estimate

100

200

300

400

500

600

Mar-

06

Sep-0

6

Mar-

07

Sep-0

7

Mar-

08

Sep-0

8

Mar-

09

Sep-0

9

Mar-

10

Sep-1

0

Mar-

11

Sep-1

1

Mar-

12

Sep-1

2

Mar-

13

Sep-1

3

Mar-

14

Sep-1

4

Mar-

15

(INR)

GAIL 8x 10x 12x 14x 16x

0

200

400

600

800

Mar-

06

Sep-0

6

Mar-

07

Sep-0

7

Mar-

08

Sep-0

8

Mar-

09

Sep-0

9

Mar-

10

Sep-1

0

Mar-

11

Sep-1

1

Mar-

12

Sep-1

2

Mar-

13

Sep-1

3

Mar-

14

Sep-1

4

Mar-

15

(INR)

GAIL 1x 1.5x 2x 2.5x 3x

Target P/E (x) 10

EPS (INR) 25.0

Core business (INR) 250

Investments (INR) 97

Target price (INR) 347

One-year forward P/BV chart

Key assumptions Valuation (FY18E)

One-year forward P/E chart


NG transmission volume (mmscmd)

96 92 89 100 110

NG trasnmission tariff (INR/mmBtu)

30.4 25.4 31.4 33.4 35.0

NG trading (mmscmd) 79 72 70 75 82

Petchem sales (kilo tonne) 445 441 590 900 900

74


GAIL: key financials


75


Net operating income 567,420 563,373 639,735 692,059

EBITDA 46,962 49,572 52,913 56,720

Depreciation 9,743 12,129 12,476 13,316

EBIT 37,219 37,443 40,437 43,404

Interest cost 3,613 4,125 3,450 3,520

Other income 8,609 5,836 6,981 7,611

PBT 42,215 39,155 43,968 47,495

Exceptional item (629) 0 0 0

Less: taxation 12,452 13,135 14,654 15,830


Adj PAT 30,392 26,020 29,313 31,665

Balance Stee (INR mn) FY15 FY16E FY17E FY18E

Equity capital 12,685 12,685 12,685 12,685

Reserves 278,510 295,398 314,423 334,974

Total borrowings 80,483 84,500 88,000 88,000

Deferred taxes 33,087 33,087 33,087 33,087

Total liabilities 404,765 425,669 448,194 468,745

Fixed assets 321,197 334,068 346,592 358,277

Investments 43,224 43,224 43,224 43,224

Inventories 20,811 12,514 13,713 14,588

Debtors 30,945 23,019 26,151 28,295

Cash 11,416 31,916 40,029 47,685

Loans & advances 69,576 75,967 85,671 92,498

Other current assets 31,764 100 100 100

Net current assets 40,344 48,377 58,378 67,245

Total assets 404,765 425,669 448,194 468,745


Operating cash flow 30,693 50,615 39,902 43,770

Capex (18,895) (25,000) (25,000) (25,000)

Free cash flow to firm 11,798 25,615 14,902 18,770

Investing cash flow (21,089) (25,000) (25,000) (25,000)

Financing cash flow (24,698) (5,115) (6,789) (11,114)

Net change in cash (15,093) 20,499 8,113 7,656

Opening cash 26,510 11,416 31,916 40,029

Closing cash 11,416 31,916 40,029 47,685


Income Statement Ratios (%)

Revenue growth (1.3) (0.7) 13.6 8.2

EBITDA growth (29.9) 5.6 6.7 7.2

Adj PAT growth (26.6) (14.4) 12.7 8.0

EBITDAM 8.3 8.8 8.3 8.2

Adj net margin 5.4 4.6 4.6 4.6

Return & Liquidity Ratios

Int/PBIT 0.1 0.1 0.1 0.0

Net debt/Equity (x) 0.2 0.2 0.1 0.1

ROE (%) 10.8 8.7 9.2 9.4

ROCE (%) 7.2 6.5 6.7 7.0

Per Share Data & Valuation Ratios

Diluted Adj EPS (INR) 24.0 20.5 23.1 25.0

Adj EPS growth (%) (26.6) (14.4) 12.7 8.0

Book Value (INR) 229.5 242.8 257.8 274.0

DPS (INR) 6.0 6.2 6.9 7.5

P/E (x) 12.3 14.4 12.8 11.8

EV/EBITDA (x) 9.4 8.9 8.4 7.8

Price/Book (x) 1.3 1.2 1.1 1.1

Dividend yield (%) 2.0 2.1 2.3 2.5


The Note is based on our estimates and is being provided to you (herein referred to as the “Recipient”) only for information purposes. The sole purpose of this Note is to provide preliminary information on the business activities of the company and the projected financial statements in order to assist the recipient in understanding / evaluating the Proposal. Nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved) and should consult its own advisors to determine the merits and risks of such an investment. Nevertheless, Elara Securities (India) Private Limited or any of its affiliates is committed to provide independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Elara Securities (India) Private Limited or any of its affiliates have not independently verified all the information given in this Note and expressly disclaim all liability for any errors and/or omissions, representations or warranties, expressed or implied as contained in this Note. The user assumes the entire risk of any use made of this information. Elara Securities (India) Private Limited or any of its affiliates, their directors and the employees may from time to time, effect or have effected an own account transaction in or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for or solicit investment banking or other business from any company referred to in this Note. Each of these entities functions as a separate, distinct and independent of each other. This Note is strictly confidential and is being furnished to you solely for your information. This Note should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This Note is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Elara Securities (India) Private Limited or any of its affiliates to any registration or licensing requirements within such jurisdiction. The distribution of this document in certain jurisdictions may be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions. Upon request, the Recipient will promptly return all material received from the company and/or the Advisors without retaining any copies thereof. The Information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This Information is subject to change without any prior notice. Elara Securities (India) Private Limited or any of its affiliates reserves the right to make modifications and alterations to this statement as may be required from time to time. However, Elara Securities (India) Private Limited is under no obligation to update or keep the information current. Neither Elara Securities (India) Private Limited nor any of its affiliates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. This Note should not be deemed an indication of the state of affairs of the company nor shall it constitute an indication that there has been no change in the business or state of affairs of the company since the date of publication of this Note. The disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. Elara Securities (India) Private Limited generally prohibits its analysts, persons reporting to analysts and their family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

Any clarifications / queries on the proposal as well as any future communication regarding the proposal should be addressed to Elara Securities (India) Private Limited.

Elara Securities (India) Private Limited was incorporated in July 2007 as a subsidiary of Elara Capital (India) Private Limited.

Elara Securities (India) Private Limited is a SEBI registered Stock Broker in the Capital Market and Futures & Options Segments of National Stock Exchange of India Limited (NSE) and in the Capital Market Segment of BSE Limited (BSE).

Elara Securities (India) Private Limited’s business, amongst other things, is to undertake all associated activities relating to its broking business.

The activities of Elara Securities (India) Private Limited were neither suspended nor has it defaulted with any stock exchange authority with whom it is registered in last five years. However, during the routine course of inspection and based on observations, the exchanges have issued advise letters or levied minor penalties on Elara Securities (India) Private Limited for minor operational deviations in certain cases. Elara Securities (India) Private Limited has not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has the certificate of registration been cancelled by SEBI at any point of time.

Elara Securities (India) Private Limited offers research services primarily to institutional investors and their employees, directors, fund managers, advisors who are registered or proposed to be registered.

Details of Associates of Elara Securities (India) Private Limited are available on group company website www.elaracapital.com

Elara Securities (India) Private Limited is maintaining arms-length relationship with its associate entities.

Research Analyst or his/her relative(s) may have financial interest in the subject company. Elara Securities (India) Private Limited does not have any financial interest in the subject company, whereas its associate entities may have financial interest. Research Analyst or his/her relative does not have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report. Elara Securities (India) Private Limited does not have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report. Associate entities of Elara Securities (India) Private Limited may have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report. Research Analyst or his/her relative or Elara Securities (India) Private Limited or its associate entities does not have any other material conflict of interest at the time of publication of the Research Report.

Disclosures & Confidentiality for non U.S. Investors


India

Elara Securities (India) Pvt. Ltd.

Indiabulls Finance Centre, Tower 3, 21st Floor,

Senapati Bapat Marg, Elphinstone Road (West)

Mumbai – 400 013, India

Tel : +91 22 6164 8500

Europe

Elara Capital Plc.

29 Marylebone Road,

London NW1 5JX,

United Kingdom

Tel : +4420 7486 9733

USA

Elara Securities Inc.

36W 44th Street, 803, New York, NY 10036, USA

Tel :+1-212-430-5870

Asia / Pacific

Elara Capital (Singapore) Pte.Ltd.

30 Raffles Place

#20-03, Chevron House

Singapore 048622

Tel : +65 6536 6267

Disclaimer for non U.S. Investors The information contained in this note is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

This material is based upon information that we consider to be reliable, but Elara Capital Inc. does not warrant its completeness, accuracy or adequacy and it should not be relied upon as such. This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. Prices, values or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested. Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate. Where an investment or security is denominated in a different currency to the investor’s currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor. The information contained in this report does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation of particular securities, financial instruments or strategies to you. Before acting on any recommendation in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Certain statements in this report, including any financial projections, may constitute “forward-looking statements.” These “forward-looking statements” are not guarantees of future performance and are based on numerous current assumptions that are subject to significant uncertainties and contingencies. Actual future performance could differ materially from these “forward-looking statements” and financial information.

Disclaimer for U.S. Investors

Research Analyst or his/her relative(s) has not served as an officer, director or employee of the subject company.

Research analyst or Elara Securities (India) Private Limited or its associate entities have not received any compensation from the subject company in the past twelve months. Research analyst or Elara Securities (India) Private Limited or its associate entities have not managed or co-managed public offering of securities for the subject company in the past twelve months. Research analyst or Elara Securities (India) Private Limited or its associate entities have not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months. Research analyst or Elara Securities (India) Private Limited or its associate entities may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company or third party in connection with the Research Report in the past twelve months.

Disclosures for U.S. Investors The research analyst did not receive compensation from Petronet LNG Limited, Indraprastha Gas Limited, Gujarat Gas Company Limited, GAIL (India) Limited and Gujarat State Petronet Limited. Elara Capital Inc.’s affiliate did not manage an offering for Petronet LNG Limited, Indraprastha Gas Limited, Gujarat Gas Company Limited, GAIL (India) Limited and Gujarat State Petronet Limited. Elara Capital Inc.’s affiliate did not receive compensation from Petronet LNG Limited, Indraprastha Gas Limited, Gujarat Gas Company Limited, GAIL (India) Limited and Gujarat State Petronet Limited in the last 12 months. Elara Capital Inc.’s affiliate does not expect to receive compensation from Petronet LNG Limited, Indraprastha Gas Limited, Gujarat Gas Company Limited, GAIL (India) Limited and Gujarat State Petronet Limited in the next 3 months.


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Elara Securities (India) Private Limited

CIN: U74992MH2007PTC172297

SEBI RA Regn. No.: INH000000933

Member (BSE, NSE)

Regn Nos: CAPITAL MARKET SEBI REGN. NO.: BSE: INB

011289833, NSE: INB231289837 DERIVATIVES SEBI REGN.

NO.: NSE: INF 231289837

CLEARING CODE: M51449.

Website: www.elaracapital.com Investor Grievance Email ID:

[email protected]

Team Details

Harendra Kumar Managing Director [email protected] +91 22 6164 8571

Vishal Purohit Co-Head Institutional Equities [email protected] +91 22 6164 8572

Sales

Deepak Sawhney India [email protected] +91 22 6164 8549

Kalpesh Parekh India [email protected] +91 22 6164 8513

Nishit Master India [email protected] +91 22 6164 8521

Prashin Lalvani India [email protected] +91 22 6164 8544

Sushil Bhojwani India [email protected] +91 22 6164 8512

Varun Joshi North America [email protected] +91 22 6164 8558

Sales Trading & Dealing

Manan Joshi India [email protected] +91 22 6164 8555

Manoj Murarka India [email protected] +91 22 6164 8551

Sanjay Joshi India [email protected] +91 22 6164 8554

Vishal Thakkar India [email protected] +91 22 6164 8552

Research

Aarthisundari Jayakumar Analyst Pharmaceuticals [email protected] +91 22 6164 8510

Aashish Upganlawar Analyst FMCG, Media [email protected] +91 22 6164 8546

Abhishek Karande Analyst Technical & Alternate Strategy [email protected] +91 22 6164 8562

Adhidev Chattopadhyay Analyst Infrastructure, Real Estate [email protected] +91 22 6164 8526

Aliasgar Shakir Analyst Mid caps, Telecom [email protected] +91 22 6164 8516

Ashish Kejriwal Analyst Metals & Mining [email protected] +91 22 6164 8505

Ashish Kumar Economist [email protected] +91 22 6164 8536

Deepak Agrawala Analyst Power, Capital Goods [email protected] +91 22 6164 8523

Jay Kale, CFA Analyst Auto & Auto Ancillaries [email protected] +91 22 6164 8507

Rakesh Kumar Analyst Banking & Financials [email protected] +91 22 6164 8559

Ravi Menon Analyst IT Services [email protected] +91 22 6164 8502

Ravi Sodah Analyst Cement [email protected] +91 22 6164 8517

Sumant Kumar Analyst Agri, Travel & Hospitality, Paper [email protected] +91 22 6164 8503

Swarnendu Bhushan Analyst Oil and gas [email protected] +91 22 6164 8504

Bhawana Chhabra Sr. Associate Strategy [email protected] +91 22 6164 8511

Manuj Oberoi Sr. Associate Banking & Financials [email protected] +91 22 6164 8535

Durgesh Poyekar Associate Oil and gas [email protected] +91 22 6164 8541

Harshit Kapadia Associate Power, Capital Goods [email protected] +91 22 6164 8542

Hemanshu Srivastava Associate Pharmaceuticals [email protected] +91 22 6164 8525

Parin Vora Associate Metals & Mining [email protected] +91 22 6164 8519

Saiprasad Prabhu Associate FMCG, Media [email protected] +91 22 6164 8518

Priyanka Sheth Editor [email protected] +91 22 6164 8568

Gurunath Parab Production [email protected] +91 22 6164 8515

Jinesh Bhansali Production [email protected] +91 22 6164 8537

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