Indian Gas Sector Dec2015 Philip Capital Analysis

INSTITUTIONALEQUITYRESEARCH
IndianGasSector
Towardsbluerskiesthroughstormclouds
2December2015
INDIA|OIL&GAS|SectorUpdate
IndiangasdownstreamwillbenefitfromlowerLNGanddomesticgaspricesandpolicy
triggerssuchaspowersectorrevivalanddistributionpush,aidingvolumes.
Companies
With its 50% Dahejcapacity expansion, Petronet LNG will continue to be the LNG
frontrunner and see sharp growth in volume and earnings in FY18. However, stock
pricealreadycapturesmostofthisupside.
INDRAPRASTHAGASLTD
Reco
BUY
CMP,Rs
483
TargetPrice,Rs
575
GUJARATSTATEPETRONETLTD
Reco
BUY
CMP,Rs
135
TargetPrice,Rs
155
PETRONETLNGLTD
Reco
NEUTRAL
CMP,Rs
234
TargetPrice,Rs
250
GUJARATGASLTD
Reco
NEUTRAL
CMP,Rs
575
TargetPrice,Rs
530
Lower domestic gas prices will improve CNG/domestic PNG (DPNG) economics,
benefitingIndraprasthaGas,furthersupportedbypolicytriggers.
PuregastransmissionplayGujaratStatePetronetwouldgainfromhighervolumeflow
andexpectedtariffrevisionbythesectorregulator.
We remain cautious on Gujarat Gas due to heavy industrial exposure, competition
fromcoal/gridpower,andexpensivevaluations.
LNGpricestoconsolidate,QatarbreakthroughtocuttermLNGpricestospotlevels
We expect LNG prices to consolidate and attain parity with liquid fuels, as demand from
major importers such as Japan and Korea peaks, coupled with material supply additions
from Australia and the US. Spot LNG prices have crashed by 60%+ from recent peaks and
currentlyhoverat~US$7/mmbtuthisisstill1020%expensivethancomparablefueloil
(FO), so further correction is likely. Recent industrymedia reports have also indicated a
possible breakthrough in the Qatar RasGas termLNG contract, changing the 60months
trailingoilpriceaveragetojustthreemonthsthiswouldreduceIndiantermLNGpricesto
~US$7/mmbtu,inlinewithspot.LowerLNGpriceswouldboostdomesticdemand.Petronet
LNG (PLNG) will continue to be the LNG frontrunner and see sharp volume and earnings
jumpsinFY18,butstockupsideaftertherecentrallyislimited.
DomesticgaspricestofallbelowUS$4;CNG/DPNGtogain,supportedbypolicytriggers
With global benchmark prices in Henry Hub, National Balancing Point (NBP) and Alberta
weakening, we estimate Indias domestic gas prices to fall to US$ 3.7/mmbtu in FY17 and
possiblyremainat~US$4foranextendedperiod.With100%domesticgasallocation,the
CNG/DPNG sector would be the biggest gainer, as lower gas prices would boost
competitiveness and volume growth and help sustain margins. The sector has received
considerable policy thrust as the government aims to increase gas usage and distribution.
WithCNGMarketingGuidelines(freeingofCNGretailing)nearimplementation,andnextleg
of expansion targeted along highways, the longterm outlook remains bright. With 80%+
exposuretoCNG/DPNG,IndraprasthaGas(IGL)wouldbenefitfromthesedevelopments.
Highergassuppliesandexpectedtariffrevisiontohelppureplaytransporters
We view pipeline players favourably due to expected tariff revision in FY17. Following
Appellate Tribunal (APTEL)s order, regulator Petroleum & Natural Gas Board (PNGRB) is
relookingatassumptionsandhasreleaseddraftamendmentrevisingthevolumedivisorby
loweringcapacityassumptionto75%from100%.WithitsaccesstoLNGterminals,Gujarat
StatePetronet(GSPL)wouldbeabeneficiaryofhigherLNGimportsandtariffsitwillsee
an earnings jump. We build a 10% tariff revision, which will have an EPS impact of Rs1.2,
incorporating~3mmscmdofpowersectorvolumes.WearecautiousonGujaratGas(GGL)
due to its heavy industrial exposure and volume risk from customers such as the Morbi
ceramiccluster,inclinedtowardscheapercoal.Valuationat17xFY18EEPSseemsexpensive.
RecommendBuyonIGL,andGSPL,NeutralonPLNGandGujaratGas
Company(Rs)
IndraprasthaGas
GujaratStatePetronet
PetronetLNG
GujaratGas
Rating
BUY
BUY
NEUTRAL
NEUTRAL
CMP TargetPrice
483
575
136
155
234
250
575
530
Page|1|PHILLIPCAPITALINDIARESEARCH
Upside FY18ERep.PE(x)
19%
13
15%
12
7%
11
8%
17
CoreTgt.PE(x)
14
11
12
16
SabriHazarika(+912266679756)
shazarika@phillipcapital.in
INDIANGASSECTOR UPDATE
TableofContents
Keytakeaways
Recommendations
GlobalLNGdemandscenario
GlobalLNGsupplyscenario
Indiannaturalgasdemandscenario
Indiannaturalgassupplyscenario
17
LNGpricingoutlook
20
Domesticgaspricingoutlook
24
RasGasLNGContract:Buildingexpectedchanges
27
UrjaGangatoboostthenationalgrid
29
Policyfocusonthegasdistributionsector
30
Companies
IndraprasthaGasLtd
36
GujaratStatePetronetLtd
48
PetronetLNGLtd
61
GujaratGasLtd
72
Keytakeaways
WeexpectalooseLNGmarket.SupplygrowthfromAustraliaandtheUSwould
outpacedemandbecauseofKoreaandJapanseeingslowdowninconsumption.
LNGpricingwillremainmutedandadjusttoparitywithoil.Currently,LNGis10
20%higherthancomparablefueloil/furnaceoil(FO).Webuildinarecoveryinoil
pricestoUS$60/bblwithcomparablespotLNGpricesatUS$8/mmbtu.
Oillinked term LNG prices would remain at reasonable levels, even though
economicswouldbemorefavourableforgasatanoilpriceofUS$60/bbl+,asfuel
oilpriceswillrise.UStermLNGwillalsofollowasimilartrajectory.
The expected breakthrough in negotiations between PLNG and RasGas is a
significantpositivedevelopment,astermLNGpriceswillbecomeatparwithspot
LNG.RasGasislikelytowaiveofUS$1.5bnontakeorpaypenalty.
Indian gas prices will fall below US$ 4/mmbtu in FY17, as global benchmarks
remain weak. Even a recovery thereafter is likely to be muted and unlikely to
crossUS$5/mmbtu,unlessoilpricesrecovertoUS$7080/bbl.
Contrary to beliefs, the current gaspricing formula is reflective of the market
scenario. The original Rangarajan formula would have also set prices at US$
4.5/mmbtu.However,removingtheRussiancomponentisdesirable.
Domesticgas supplies are likely to rise from ONGCs fields of Daman, Bassein
EOR, and Vashishtha, and from smaller assets such as Cairn Rajasthan, CBM
blocks,andGSPCDeenDayal.LowpriceswillslowdowndevelopmentoflargerKG
blocks.
MultipleLNGterminalsareplanned,thoughinthemediumterm,capacitygrowth
would come from Petronet LNGs 5mmtpa Dahej expansion and probable
expansioninHaziraanddebottleneckingatDabhol.
Indian demand will be boosted by lower LNG and domestic gas prices. Power
sectorwillbebiggestdemanddriverduetogovernmentsstrandedpowerplant
revivalpolicy.
Planned fertiliser capacity addition can add to gas sales, but this is likely only
towards the end of the decade. City gas distribution (CGD) has seen significant
policy thrust with the government allocating first priority to domestic gas for
CNG/DPNG.
The government targets rapid expansion of gas distribution infrastructure with
biddingfornewareas,planstodoubletrunkpipelinenetwork,andfreeingofCNG
retailing(wherehighwayoutletscanbesetupbyanyeligibleparty).
Industrial gas distribution sector would need liquid fuel prices to recover. In
Gujarat,morethanliquidfuels,coalandgridpowerareseriouscontenderstogas.
Tariff revisions expected in the gastransmission sector, as the sector regulator,
PNGRBinitiatestheprocesstorelookatassumptions.Ithasalreadypublisheda
draftamendmentthatwilllowerthevolumedivisorthiswouldboostunittariffs.
Recommendations
PositiveonIGLandGSPL
Indraprastha Gas With its aggressive expansion skills, sound industry experience,
anddisciplinedcapitalallocation,itisbestplacedtocatchincrementalpolicytriggers
in CNG/DPNG while being largely insulated to the risks of an industrial PNG (IPNG)
slowdown.
GujaratStatePetronetConcentratednetworkinGujaratputsitinasweetspotto
be the first beneficiary of higher spot LNG volumes and incremental power sector
demand from Gujaratbased LNG terminals. We expect tariff revision, as PNGRB
initiatestherevisionprocess.
NeutralonPLNGandGujaratGas
Petronet LNG It will be the biggest beneficiary of the LNG boom with the Dahej
terminalinanenviablepositionwelluptotheendofthisdecade.However,withthe
recentrallyinanticipationoftheQatarbreakthrough,itsstockpriceisnotleftwith
toomuchupside.ReratingnowdependsonitsKochiterminalsutilisation,whichwe
believecouldreachamaximumof1mmtpabyFY19/20unlessGAILspipelineissueis
sortedout(wherevisibilityisnotclear).
GujaratGasDueto70%+exposuretoindustrialsectors,GujaratGasisinatough
situationwhereithastochooseeithermarginorvolumegrowth.Itsstockistrading
atafairvalue,evenafterbuildinginrobustvolumegrowthandmarginrecovery.
GlobalLNGdemandscenario
PullbackinKorea/Japanimportstooffsetgrowthelsewhere
TheAsiandemandscenarioforLNG(growthandvolume)isbasedontheoutlookof
45 major consumers Japan, South Korea, China, India, and Taiwan. As per the
InternationalGasUnion(IGU),inCY14,India/Chinarecordedthehighestyoygrowth
inLNGimportsat+1.7/+1.4mmt.
ImportsfrommainnorthAsianconsumersS.KoreaandJapanslowingdown
LNGimportsbycountry(mmt)
Japan
SouthKorea
China
India
Taiwan
UK
Spain
Mexico
Brazil
Turkey
Argentina
France
Italy
Chile
Kuwait
Singapore
Malaysia
Others
Total
Source:IGU,PhillipCapitalIndia
CY13
87.8
40.8
18.6
12.9
12.8
6.9
9.4
6
4.4
4.3
4.9
5.8
4.1
2.9
1.6
0.9
1.7
11
236.8
CY14
88.9
38.0
20.0
14.6
13.6
8.5
8.2
6.9
5.7
5.4
4.7
4.7
3.3
2.8
2.7
1.8
1.8
9.5
241.1
yoychg
1.1
2.8
1.4
1.7
0.8
1.6
1.2
0.9
1.3
1.1
0.2
1.1
0.8
0.1
1.1
0.9
0.1
1.5
4.3
LNGexportsbycountry(mmt)
Qatar
Malaysia
Australia
Nigeria
Indonesia
Trinidad
Algeria
Russia
Oman
Yemen
Brunei
UAE
Peru
Eq.Guinea
Norway
PNG
Angola
Egypt
USA
CY13
77.2
24.7
22.2
16.9
17
14.6
11.1
10.8
8.6
7.2
7
5.4
4.2
3.9
2.9
0
0.3
2.8
0
CY14
76.8
25.1
23.3
19.4
16
14.4
12.8
10.6
7.9
6.8
6.2
5.8
4.3
3.7
3.6
3.5
0.3
0.3
0.3
yoychg
0.4
0.4
1.1
2.5
1
0.2
1.7
0.2
0.7
0.4
0.8
0.4
0.1
0.2
0.7
3.5
0
2.5
0.3
Total
236.8
241.1
4.3
SouthKoreaLNGimportsdeclining,likelytofallfurther
While other countries also saw some growth, South Korea recorded a notable
2.8mmt(7%)declineinitsLNGimportsdueto(1)lowerpowersectordemandascoal
and nuclear energy became cheaper, and (2) policy support for nuclear plants. In
CY15,SouthKoreanimportsarelikelytofallby23mmt.
Japansimportslikelytostagnate
AroundfivereactorsinJapanhavereceivedapprovalwhileapprovalsarependingfor
another 20. Japans LNG imports in CY10 (before the Fukushima disaster) were
~70mmt the CY14 runrate of ~89mmt implies 1520mmtpa of additional LNG.
While the process of restarting nuclear reactors would be slow, Japanese LNG
imports may not see material growth in the next 34 years, thereby dampening
overallLNGdemand.
Othersareamixedbag
Taiwanisabrighterspeck,withyoyimportgrowthseeninthe1mmtrange(although
seasonal factors could lower this number). Singapore, Thailand, Pakistan, Turkey,
Kuwait, and Egypt are other potential positive demand growth centres though the
latter three are accessible to the Atlantic Basin and Middle East exporters. While
Singapore, Thailand, Pakistan, and Kuwait are genuine demand drivers, Turkeys
considerationisdependentonRussiangeopoliticsandEgypthasfeedstockgasissues.
Slowing demand in the largest two gas importers (Japan and Korea) could offset
potentialgrowthinlesserAsianeconomies(excludingChinaandIndia),resultingina
flatdemandscenario.
SouthKoreasLNGimportsfellby
2.8mmtinCY14andarelikelytofall
furtherby23mmtinCY15
ChinaLNGdemandhitbyslowingconsumption
Chinas LNG demand has faced headwinds due to slowing consumption as its
economyslowsdown.Againsta1.4mmt(8%)yoygrowthinCY14to20mmt,Chinas
CY15 runrate is likely to be flat at best. Chinas gas pricing reforms kept non
residentialgaspriceshighatUS$812/mmbtu,makinggashighlyuncompetitivevis
vis alternate fuels such as fuel oil and coal. This has in fact called for reverse
reformsandthegovernmentrecentlycutgaspricesby2530%.
Chinasdemandslowdownwassoseverethat(likeIndia)ithadtodeferpricierterm
LNG volumes, unlike its northeast Asian peers. With the Indian term contract
expectedtoseeapricingbreakthrough,Chinawouldalsoseethesame.
ArbitrageopportunitieslimitedtoLatinAmerica
InCY14,importsfromBrazil,Mexico,andUKincreasedandIGUexpectsthistrendto
continue (except Mexico). However, this is more than offset by the decline in LNG
imports from remaining regions, most notably Europe, where coalbased power
generationandrenewablesaregainingshareanddemandremainsweak.Therefore,
weseefairlyflattoonlyslightlyimprovingglobalLNGdemandahead.
Totalglobalregascapacityrising
Importandregasterminalshavecontinuedtogrow,withCY14LNGregascapacityat
724mmtpa (+31mmtpa yoy) in 30 countries, totalling 101 terminals this is more
than two times the existing liquefaction capacity. Mature consumers such as Japan
andSouthKoreaandgrowingmarketssuchasChina,Brazil,Indonesia,Kuwait,Chile,
andSingaporeaddedcapacities.ByCY20,17terminalsunderconstructioninexisting
and new countries such as China, India, Japan,Egypt, Jordan, Pakistan, Poland, and
Uruguay would add 74mmtpa. CY14 utilisation levels were 33%, largely in line with
thepreviousyear;netofUScapacities,utilisationswerebetterat41%.
MostofthecapacitygrowthwillbeseeninAsia(China+India)followedbyEurope
(France+Poland).However,Chinascapacitygrowthmaynottranslateintovolume
growth as economic slowdown and high gas prices have bitten into LNG
consumption.Infact,capacityutilisationofChineseterminalsfelltonear50%inCY14
fromalmost60%earlier.
LNGregascapacityscenario
mmtpa
AsiaPacific
Europe
NorthAmerica
LatinAmerica
Asia
MiddleEast
Africa
Total
CumulativeCapacity
ActualImports
Utilisation
Existing
325
145
155
24
60
15
0
724
724
241
33%
Source:IGU,PhillipCapitalIndiaResearch
Note:FIDFinalInvestmentDecision
FID
6
14
0
4
42
4
4
74
798
PreFID
52
40
30
25
210
45
8
410
1208
Weseefairlyflattoonlyslightly
improvingglobalLNGdemandahead
Countrywiseregascapacityscenario
mmtpa
Japan
US
SouthKorea
Spain
China
UK
India
France
Mexico
Taiwan
Others
Total
Existing
190
132
99
43
39
38
22
17
17
13
114
724
Utilisation
47%
1%
38%
19%
51%
22%
66%
27%
41%
105%
UnderCons.
4
28
15
10
17
74
Future
194
132
99
43
67
38
37
27
17
13
131
798
Source:IGU,PhillipCapitalIndiaResearch
Chinasregascapacityrising,butlargelyidle
Chinas CY14 LNG regasification (regas) capacity was 39.5mmtpa, but seven new
terminalsandtwoexpansions(totalling28mmtpa)areunderway.Terminalutilisation
remainslowat~50%andcouldfallfurther.Whilealongertermbullishscenariocould
spring from environmental considerations (China has been making efforts in this
direction) current economics are not in favour. A 2530% cut in Chinas domestic
provincial gas prices means going back on its reforms, but current market scenario
activelycalledforsuchacut.
Indianregascapacitytogrow,butmajoradditionsonlybyCY1820
Indias LNG demand scenario is better than China. However, out of four existing
terminals in India, two have technical issues Kochi is stranded while Dabhol has
breakwater issues (which has kept its effective capacity at 2mmtpa), and remains
offline during monsoons (May to September). Hence, Indias terminal utilisation is
~60%. A number of greenfield LNG terminals and two expansion projects are
underway, which would potentially add 3540mmtpa of capacity,but most of them
willbeonlineonlybyCY1820.
While spot LNG remains 1020% costlier than FO in general, due to a skewed tax
structure and various markups, the difference is wider in India. However, domestic
gas prices are more reasonable based on the new formula implemented in
CY14.Therefore,domesticgaseconomicsaremuchbetteroffthanChinas.
Chinascapacitygrowthmaynot
translateintovolumegrowthas
economicslowdownandhighgasprices
hadbittenintoLNGconsumption
Indiasdomesticgaspricingscenariois
muchmoredemandaccommodativein
comparisontoChina
GlobalLNGsupplyscenario
Globalliquefactioncapacityissettorisesignificantly
Liquefactioncapacityissettorisesignificantlyoverthenext510yearsasAustralia
and US commission key projects. In CY14, 6.9mmtpa Papua New Guinea (PNG),
4.3mmtpaQCLNG(Australia),and4.7mmtpaArzew/Skikda(Algeria)expansionscame
online,whichhadabearingonspotLNGpricesasdelaysintermvolumerampupled
tohigherspotsupplies.128mmtpaofliquefactioncapacityisstillunderconstruction
atthebeginningofCY15,ofwhich~60mmtpaisinAustraliaand44mmtpa,intheUS.
Proposed liquefaction capacity totals a whopping 836mmtpa, though there are

challenges in execution such as a possible oversupply scenario, higher capex, and
competition from liquid hydrocarbons. Recently proposed liquefaction facilities
include western Canada, east Africa, and Russia. Utilisation levels in liquefaction
capacityof301mmtpastandsat~80%+,thoughthiscouldfall.
Liquefactioncapacityoutlookoverthenextfiveyears
FY1620islikelytoseeanLNGcapacity
glutdrivingactualvolumes
Mmtpa
CY08
CY14
CY20E
Africa
58.7
69.9
69.9
AsiaPacific
81.2
95.3
158.1
Europe
3.4
4.2
4.2
FSU
0.0
9.6
26.1
YamalLNGinRussiatoraisecapacityby16.5mmtpa
LatinAmerica
15.5
20.0
20.5
Largelyflatcapacity
NorthAmerica
1.5
1.5
44.1
46.8
100.8
100.8
Toremainlargelyflat;IsraelLeviatanfielddevelopmentonhold,CypriotLNGatconceptualstage
207.1
301.3
423.7
122mmtpaofadditionalLNGliquefactioncapacityexpectedtohitthemarketbyCY20
MiddleEast
Total
Remarks
47.5mmtpaofnewcapacitiesproposedinMozambiqueandTanzania,butbeyondCY20
62mmtpafromAustralia,9.5mmtpafromMalaysia/Indonesia,slightlyoffsetbysomedecommissioning
Flatcapacity
44mmtpacapacitysolelyintheUS,asCanadianandMexicanprojectswillgobeyondCY20
IGU estimates include only under construction plants (excluding PreFID projects)
even these conservative estimate point to120mmtpa+ of additionalcapacity in the
next 56 years vs. ~90mmtpa addition in the past 56 years. IGU sees 36mmtpa
capacitycommissioninginCY15inAustralia,Malaysia,andIndonesiaamongothers.
StatusofUSLNGexportfacilitiesunderconstruction
Developer,Plant,Trains
Cheniere,SabinePass,T12
Cheniere,SabinePass,T34
FreeportLNG,T12
Sempra,Cameron,T13
Dominion,CovePoint
Total
Capacity
(mmtpa)
9.0
9.0
8.8
12.0
5.3
44.1
Yearof
commissioning
CY16
CY1617
CY18
CY18
CY17
Export
approval
AllCountries
AllCountries
AllCountries
AllCountries
AllCountries
StatusofAustralianLNGexportfacilitiesunderconstruction
Developer,Plant,Trains
Conoco,AustraliaPacific,T12
Santos,Gladstone,T12
BG,QCLNG,T12
Chevron,Gorgon,T13
Chevron,Wheatstone,T12
Inpex,Ichthys,T12
Shell,PreludeFLNG
Total
Capacity
(mmtpa)
9.0
7.8
8.5
15.6
8.9
8.4
3.6
61.8
Yearof
commissioning
CY15
CY1516
CY15
CY16
CY17
CY17
CY17
Feedgas
type
CBMfeed
CBMfeed
CBMfeed
Source:IGU,GIIGNL,PhillipCapitalIndiaResearch
While the current oil and gas price crash may stall/delay future projects (including
preFID stage facilities) FY1620 is likely to see an LNG glut considering lacklustre
demand.
IGUsees36mmtpacapacity
commissioninginCY15inAustralia,
Malaysia,andIndonesiaamongothers
Indiannaturalgasdemandscenario
Demandsensitivetopricing
Indias latent demand remains high considering the relative under penetration of
natural gas. Share of natural gas in Indias primary energy basket is 8% vs. global
averageof24%.InIndia,consumptiondependsonthegaspricingwhichisaffected
by two of the major sectors (power and fertiliser, comprising 60% of total gas and
70%+ofdomesticgasconsumed)beingheavilysubsidised.
Indiasgasconsumptionmix*
mmscmd
Power
Fertiliser
CityGas
Refineries
Petchem
Steel
LPGExtraction
Others
Total
Domestic
27.3
30.3
7.3
1.9
3.8
1.3
1.8
6.4
80.0
RLNG
2.2
12.6
8.2
10.5
0.9
1.8
1.1
3.8
41.1
Total
29.4
42.9
15.5
12.3
4.7
3.1
2.9
10.2
121.1
Share(%)
24%
35%
13%
10%
4%
3%
2%
8%
100%
Indiashistoricalgasconsumptionmix
mmscmd
Power
Fertiliser
CNG+DPNG
Industrial
Petchem/Refineries
Iron&Steel
Total
FY08
32.9
26.8
2.4
14.4
5.7
1.4
83.5
FY09
34.5
24.9
3.0
21.8
4.7
1.5
90.4
FY10
58.5
36.1
4.1
21.7
5.4
1.6
127.4
FY11
70.6
31.4
6.9
21.6
7.8
2.1
140.4
FY12
56.7
31.0
8.7
22.5
4.5
5.1
128.4
FY13
39.7
31.5
7.5
20.4
6.5
1.9
107.5
FY14
28.9
30.3
8.0
16.5
7.5
2.0
93.1
Source:MOPNG,Company,PhillipCapitalIndiaResearch
*Pleasenote,thisdatadoesnotfullyreconcilewithindustryguidancethoughitispostedonthePetroleum
Ministry(MOPNG)website
Fertilisersectorisbetteroffthanpower
Inreality,fertiliserisbetteroffconsideringdirectgovernmentsubsidy.However,gas
basedpowerhasgonethroughdifficulttimesascheapdomesticgassupplydeclined
tolessthan75mmscmdcurrentlyfromapeakof126mmscmdinFY11,primarilydue
to a steep fall in KGD6 output. Domestic gas consumption of the power sector
reduced to 27mmscmd from 70mmscmd+ over this period. Despite RLNG supplies
increasing, the power sector consumed very little RLNG due to high prices. Gas
basedpowerbecametooexpensiveespeciallyvs.coalbasedplantsresultinginlower
PLFsformanygasbasedplants.Fertilisersectoralsosawdomesticgasconsumption
fallingduetosimilarreasons,butasaresultofavailablegovernmentsubsidy,RLNG
usagecoveredlostgroundandcurrentlyalmost30%gasflowsasRLNG.
ShareofnaturalgasinIndiasprimary
energybasketis8%vs.globalaverage
of24%
DomesticnaturalgasoutputdownsinceFY11;partlyoffsetbyRLNG
NetDomesticGasSupply
RLNGSupply
TotalGasAvailable
250
222
200
mmscmd
163
150
123
97
100
50
FY20E
FY19E
FY18E
FY17E
FY16E
FY15
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
FY05
Source:MOPNG,Company,PhillipCapitalIndiaResearch
PNGRBsVision2030hascutdemandestimatesfornaturalgasto300mmscmd(from
450mmscmd by MOPNGs Working Group for 12th plan). We believe that among
subsidised and mandated sectors (power, fertiliser, CNG/DPNG), major demand
potentialexistsfrompower,subjecttofavourableprices.
As per Ministry of Petroleum & Natural Gas (MOPNG)s estimates, current gas
requirementofIndiaspowersectoris81.5mmscmdonaPLFof7075%.Additional
5,449MWofnewprojectswouldraiseitbyover20mmscmdto103mmscmd.
Realisticscenariopointsto300mmscmdofcurrentdemand
mmscmd
PNGRBVision2030
Power
Fertiliser
CGD
Industrial
Petchem/Ref.
Iron&Steel
Total
MOPNGWork.GrpXIIPlan
FY15
FY16
FY17
FY20
5yrsCAGR
122
60
17
22
42
8
271
405
139
72
18
25
44
8
306
446
157
97
22
27
47
8
358
473
202
106
36
35
54
10
443
575
11%
12%
16%
10%
5%
5%
10%
7%
PNGRBsVision2030hascutdemand
estimatesfornaturalgasto
300mmscmdfrom450mmscmd
estimatedbyMOPNGearlier
Source:MOPNG,PNGRB,Company,PhillipCapitalIndiaResearch
MOPNGestimatesgasdemandfromthefertilisersectorat49mmscmd,althoughthis
includesconversionofafewliquidfuelplantsandstrandedfacilities.Withthenew
policy for stranded gasbased power plants and gasprice pooling for fertilisers, the
governmentexpectsRLNGconsumptionfromboththesesectorstorisebecauseof
lowspotLNGpricesandrevival/expansionoffertiliserunits.
Gassubsidyforstrandedpowerplantsnear/mediumtermboost
In March 2015, the government announced a policy for reviving utilisation of
stranded gasbased power plants whereby these plants are allowed to bid for
producingpowerat30%PLFwithzeroreturnonequity(ROE).Underthispolicy,the
differencebetweentheirPowerPurchaseAgreement(PPA)tariffandgenerationcost
will be subsidised by the Power System Development Fund (PSDF). As per the
government,24,150MWofgasbasedcapacitywasimpactedduetosupplyissues
of this, almost 60% (14,305MW) was at zero PLF while the rest (9,845MW) was
runningsuboptimally.
Withthenewpolicyforstrandedgas
basedpowerplantsandgasprice
poolingforfertilisers,thegovernment
expectsRLNGconsumptionfromboth
thesesectorstorise
Asperthispolicy,11,489MWofgrosscapacities(about48%oftheonesimpactedby
low supplies) would be serviced. The policy estimates gas demand from these
capacities at 10mmscmd during the monsoons (four months) and at 18mmscmd in
theothermonthsoftheyear,therebyaveraging16mmscmdofincrementalgas.
Gasrequirementprojectionsbythegovernmentforstrandedpower
25/3/2015Announcement
MonsoonGasRequirement
NonMonsoonGasRequirement
AverageAnnualRequirement
MWRunningOn16mmscmd
mmscmd
10
18
16
3,447
months
4
9
12
30,193MU
Detailsofgasbasedcapacities
TargetPLFonCapacities
GrossCapacitiesServiced
TotalStrandedCapacity(0%PLF)
SuboptimalCapacities
TotalAffectedGasBasedCapacities
30%
11,489
14,305
9,845
24,150
Source:Govt.data,PhillipCapitalIndiaResearch
PolicyforstrandedplantssparksdemandatDahejLNGterminal
ThepolicywasimplementedeffectiveJune2015andthefirstroundofbiddingsaw
6,860MWstrandedcapacityseeking~9mmscmdofgasand3,402MWofsuboptimal
capacityseeking1mmscmdofgas.AsperPLNG,56mmscmdofincrementalvolumes
in its Dahej terminal in Q2FY16 was a result of this bidding. While details on the
Haziraterminalarenotknown,wedonotbuilditsactiveparticipationinthisprocess
duetomerchantnatureoftheterminalandbecauseitisprivatelyowned.
Against10mmscmdoftotalgasbeingsought,theactualconsumptionislikelytohave
been 5060%. From September 2015 to March 2016, total gas requirement under
biddingis~14mmscmdandhencea5060%runrateherecouldimply78mmscmdof
gas volume during this period. While Dabhols terminal would also be operational
withinthisperiod,Dahejcouldmaintainits56mmscmdrunrate.
PricebuildupofspotLNGforpower
SpotLNG
LNGLandedPrice
CustomsDuty
CustomsDuty
ImportPrice
Currency
ImportPrice
RegasificationCharge
ExTerminalPrice
TerminalStateVAT
VATPaid
MarketingMargin
PipelineTariff
DeliveredPrice
OtherLocalTaxes
OtherLocalTaxes
FinalPricetoCustomer
Units
US$/mmbtu
%
US$/mmbtu
US$/mmbtu
Rs/US$
Rs/mmbtu
Rs/mmbtu
Rs/mmbtu
%
Rs/mmbtu
Rs/mmbtu
Rs/mmbtu
Rs/mmbtu
%
Rs/mmbtu
Rs/mmbtu
US$/mmbtu
Rs./scm
Source:Industry,PhillipCapitalIndiaResearch
Raw
7.0
0%
0.0
7.0
65.0
455
40.5
496
12.5%
61.9
13.0
28.0
598
0%
0.0
598
9.2
23.7
Incentivised
7.0
0%
0.0
7.0
65.0
455
20.3
475
0.0%
0.0
3.3
14.0
493
0%
0.0
493
7.6
19.5
AsperPLNG,56mmscmdof
incrementalvolumesinitsDahej
terminalinQ2FY16wasaresultof
powersectorbidding
Fixedcostcomputation
GasBasedPlant>PLF
Capacity
Cost/MW
Capex
Equityat30%
Debt
MillionUnitsProduced
RoEat0%
Interestat11.5%
Depreciation(25yrs,RV)
O&MCost(1.1xMW)
TotalFixedCost
TotalFixedCost
Units
mw
Rsmn
Rsmn
Rsmn
Rsmn
MU
Rsmn
Rsmn
Rsmn
Rsmn
Rsmn
Rs/kwh
30%
1,000
50
50,000
15,000
35,000
2,628
4,025
1,800
1,100
6,925
2.6
Raw
10,000
1,720
5.8
0.2
9.2
65.0
23.7
4.1
2.6
6.7
Incentivised
10,000
1,720
5.8
0.2
7.6
65.0
19.5
3.4
2.6
6.0
Source:Company,PhillipCapitalIndiaResearch
Powertariffcomputation
GasBasedPlant30%PLF
CalorificValue
StationHeatRate
Power/UnitofFuel
Fuel/UnitofPower
DeliveredGasPrice
Currency
GasPrice
PowerVariableCost
PowerFixedCost
TotalPowerTariff
Units
kcal/scm
kcal/kwh
kwh/scm
scm/kwh
US$/mmbtu
Rs./US$
Rs/scm
Rs/kwh
Rs/kwh
Rs/kwh
NocutintariffbyPLNG,asthestrandedplantspolicyhaddemanded
Whilethepolicycallsfor50%cutinregaschargesandtransmissiontariffs,and75%
cut in marketing margins and exemption from various duties, PLNG has maintained
that it has charged full tariff and scheme operator GAIL has not lodged any
opposition. In fact, GAIL has said that since PLNG is a private company, a tariff cut
cannotbeimposed,aviewthatMOPNGhasaccepted.Dahejregastariffisalsothe
lowestinthecountry.
Strandedpowerplantsunderthefirstbiddinground(JunSeptember2015)
Plant
DGENCCPP
JegurupadduII
Unosugen
RVKEnergy
KondIIandIII
Saravnanthi
Vemagiri
Rajahmundry
UtranCCPP
DabholTPS
Total
Owner
Torrent
GVK
Torrent
RVK
Lanco
Saravanthi
GMR
GMR
GSECL
RatnagiriGas
Capacity(MW)
1200
221
383
20
1108
450
370
768
374
1967
6860
GasReqd.(mmscmd)
1.98
0.28
0.64
0.06
1.94
0.21
0.46
0.48
0.7
2.13
8.89
SincePLNGisaprivatecompany,a
regastariffcutcannotbeimposedas
wasmandatedforpowersector
Suboptimalpowerplantsunderfirstbiddinground
Plant
Auraiya
Peguthan
Dadri
Dhuvaran
Sugen
Total
Owner
NTPC
CLP
NTPC
GSECL
Torrent
Capacity(MW)
663
655
830
106
1,148
3,402
GasReqd.(mmscmd)
0.25
0.29
0.02
0.1
0.52
1.17
Strandedpowerplantsunder2ndBiddingRound(Oct:15Mar:16)
Plant
DGENCCPP
JegurupaduII
Unosugen
KonIIandIII
Vemagiri
Rajahmundry
UtranCCPP
DhuvaranCCPP
DabholTPS
PipavavCCPP
PioneerCCGT
Konaseema
GammaCCPP
Total
Owner
Torrent
GVK
Torrent
LancoInfra
GMR
GMR
GSECL
GSECL
RatnagiriGas
PipavavJV
Pioneer
KonaseemaGas
GammaInfaprop
Capacity(MW)
1200
220.5
382.5
1108
370
768
374
594
1967
351
200
445
225
8262
GasReqd.(mmscmd)
1.37
0.53
0.43
2.61
0.87
1.8
0.25
0.81
1.75
0.42
0.15
1.17
0.16
12.3
Suboptimalpowerplantsundersecondbiddinground
Plant
SugenCCPP
DadriCCPP
AuraiyaCCPP
BarodaCCPP
PeguthanCCPP
Total
Owner
TorrentPower
NTPC
NTPC
GIPCL
CLPIndia
Capacity(MW)
1,148
830
663
160
655
3,456
GasReqd.(mmscmd)
0.5
0.4
0.1
0.2
0.5
1.7
AtUS$7/mmbtuspotLNGprices,thisschemecangainfurthergroundandresultin
higherRLNGflowsintothecountry,particularlyduringthenonmonsoonmonthsas
Dabhol terminal becomes available. Power Minister Piyush Goyal has talked about
thecentralgovernmentsintentiontosourcemoregasatprevailingcheapprices.
Gaspricepoolingforfertilisersapositive,ureaplantrevivaltargeted
The government had recently announced gasprice pooling for the fertiliser (urea)
sectorinordertorationalisethesubsidystructureandenhanceefficiency.Currently,
Indias fertiliser demand is 30mmtpa, of which 23mmtpa is produced in India in 30
plants, 27 of which are gasbased and three are naphtha/FO based. The gasbased
plantsconsume~43mmscmd(including1213mmscmdofRLNG).Currentgrossgas
demandforthesectorisassumedtobeat~49mmscmd,whichcouldincludeliquid
fuelandstrandedplants.
The Indiangovernment expects urea demand to rise to34mmt by FY18/19 with an

additional urea production of 3.7mmt. This could be from revival of sick units in
Sindri,Gorakhpur,andBarauniof~1.3mmtpaureacapacityeach.Apartfromthis,the
government expects additional capacities to come from new plants such as Matixs
WestBengalunit(1.3mmtpa,runningonCBM),ChambalsKotaExpansion(1mmtpa),
andONGCsTripuraunit(1.3mmtpa).
TheIndiangovernmentexpectsurea
demandtoriseto34mmtbyFY18/19
withadditionalureaproductionof
3.7mmt.
Our calculation suggests four urea plants Kota expansion, Sindri, Gorakhpur and
Barauni could add 4.9mmtpa of capacity, which would result in 9mmscmd of
additionalgasdemandbyFY19/20.
Ureademandsupplyscenario
TotalPlants
GasBased
NaphthaBased
TotalConsumption(mmtpa)
DomesticProduction
OmanUOTA
Imports
FY18Demand
FY25Demand
AdditionalUreaProduction(mmt)in4yrs
Planttoberevived
30
27
MCFL,MFL,SPIC
30
23
2
5
34
38
3.7
Gorakhpur,Barauni,Sindri
Gasconsumptionpatternofthefertilisersector
GasToFertiliser
CurrentSupply(pooledprice)
DomesticGas
QatarTermRLNG
SpotLNG
CurrentDemand
FutureDemand
IncrementFromPresent
Volumes(mmscmd) DeliveredPrice(US$/mmbtu)
43
6.1
30
5.0
10
8.5
3
8.5
49
64
21
Source:MOPNG,PIB,Industry,PhillipCapitalIndiaResearch
Nosignificantuptickindomesticureaproductionseen
However, our fertiliser analyst does not expect significant uptick in domestic urea
production,as(1)existingplantsarealreadyoperatingat~100%capacity,(2)revival
of stranded ones and setting up of new plants would be challenging, and (3) this
would come in only at the end of our forecast period. If 3.7mmtpa capacity comes
online, gas demand would increase by 67mmscmd to 55mmscmd+. However, the
government has projected the sectors gas demand rising even higher (to
64mmscmd)innext45years.
Inspirit,gaspricepoolingisbeneficialtofertiliserplantsonlowspotLNGprices,
the working capital burden of these companies would ease; for the government,
therecouldbesubsidysavings.Currently,fertilisercompaniescontract~10mmscmd
ofQatartermLNGthisimpliesthat~3mmscmdofspotRLNGisbeingsuppliedto
thesector,coupledwith~30mmscmdofdomesticgas.Withpoolingofdomesticgas,
termLNG,andspotLNGprices,weightedaveragenormativegaspriceforthesector
wouldbe~US$6/mmbtuassumingcutinQatarLNGpricestoUS$7/mmbtu.
Mostoftheincreaseingasconsumptionwillcomefromthepowersector
Therefore, among the two largest gasconsuming sectors, we expect an increase in
gasconsumptionmostlyinthepowersector,consideringthenewpolicyforreviving
stranded power plants. The fertiliser sector could see higher consumption after
capacityadditions(couldbetowardstheendofthisdecade).
For our coverage universe, we maintain a Q2 runrate of 56mmscmd volumes for

PLNGduetolimitedcapacityavailabilityforthenexttwoyears.However,afterFY18,
additionalvolumesmayflowintothepowerandfertilisersectors.GSPL/GSPCexpects
strandedpowerplantgassuppliestoriseto~3mmscmdfromthecurrentrunrateof
~2mmscmd.
Withpoolingofdomesticgas,term
LNG,andspotLNGprices,weighted
averagenormativegaspriceforthe
sectorwouldbe~US$6/mmbtu
Amongthetwolargestgasconsuming
sectors,weexpectanincreaseingas
consumptioninthepowersector
Industrialgasdemandeconomicsremaindicey
Industrial PNG (IPNG) scenario continues to remain weak, considering sharp fall in
liquid fuel prices. In the western region (Gujarat, Maharashtra), retaillevel fuel oil
pricesineffectremain30%cheaperthanIPNG.InthenorthernregionslikeUP,the
dynamicsareevenworsewithaskewedtaxstructure(fueloilistaxedat10%vs.25%
forPNG).
CurrentindustrialPNGversusfueloilpricesinGujarat/Maharashtra
FurnaceOil
FORSP(Rs/mt)
FOPrice/kg(Rs)
CalorificValue(kcal/kg)
FOPrice/mncal.(Rs)
Gujarat
24,900
24.9
10,200
24.4
Maharashtra
25,000
25.0
10,200
24.5
Gujarat
33.9
9,500
35.7
32%
Maharashtra
34.5
9,500
36.3
33%
IndustrialPNG
IPNGRSP,PostTax(R./scm)
CalorificValue(kcal/scm)
IPNGPrice/mncal.(Rs)
FODisc.ToIPNG
Source:Company,Industry,PhillipCapitalIndiaResearch
TheheadwayinRasGastermLNGcontractisamajorpositive,asitwilllowerQatar
LNGpricestospotLNGlevels.However,evenatUS$7/mmbtu,LNGeconomicsare
stillnotattractiveascurrentoilpriceislessthanUS$50/bbl.Abasiccomparisonat
US$50/bbloilprice(notincorporatingtaxes,retailermargins,andsimilarmarkups)
revealsthatfurnaceoilis7%cheaperataspotLNGpriceofUS$7/mmbtu.OnGross
CalorificValue(GCV)basis,FOis78%moreheatingefficientthannaturalgas.
This situation will prevail until oil prices recover to ~US$ 60/bbl. At US$ 60/bbl oil,
US$ 7.5/bbl normalised FO discount, rupeedollar exchange rate of 63, and US$
8/mmbtuofspotLNGprices,theeconomicswouldbefavourabletotheextentthat
FOwillbe~3%moreexpensivethangas.
Undersuchascenario(oilatUS$60),biggerindustrialconsumerssuchasrefineries,
petrochemicalplantsandsteelindustrieswouldincreasetheirLNGconsumptiondue
to various reasons contract commitments, hassle free supply, environmental
benefitsandcleannatureofgashelpinginmaintenanceofplantandequipment.We
believespotLNGvolumesarelikelytoincreaseforthesebulkcustomersandhence
weremainpositiveonbulktransporterssuchasGSPL.
IndustrialgaseconomicstoturncompetitiveonlyatUS$60/bbl+crude
Currency(Rs/$)
LNGPrice($/mmbtu)
Markups($/mmbtu)
DeliveredPrice($/mmbtu)
PriceinRs./scm
GrossCal.Value(kcal/scm)
GasPrice/mncal.(Rs.)
FO/Gas
FOPrice/mncal.(Rs.)
GrossCal.Value(kcal/kg)
FOPrice(Rs./mt)
FOPrice($/bbl)
FOCracks($/bbl)
BrentPrice($/bbl)
US$50oil/US$7spotLNG US$60oil/US$8spotLNG
65.0
63.0
7.0
8.0
0.9
1.0
7.9
9.0
18.2
20.1
9,500
9,500
19.2
21.2
7%
3%
17.8
21.9
10,200
10,200
18,181
22,293
41.5
52.5
(8.5)
(7.5)
50
60
IndustrialPNGscenariocontinuesto
remainweak,consideringsharpfallin
liquidfuelprices
WebelievespotLNGvolumesarelikely
toincreaseforbulkcustomersand
henceweremainpositiveonbulk
transporterslikeGSPL
However, CGD companies catering to industries are in a tighter spot small and
mediumindustriesaremoreelastictogasprices,particularlyinGujarat,wherecheap
gridpowerandlowcostcoalhaveemergedasseriouscontenderstogas.InGujarat,
gasbased Combined Heating & Power (CHP) plants (even after a cut in Qatar term
LNG prices) would be unattractive as cost of power from these is 20% higher than
gridpower,whichweestimateis~Rs7/kwhonanaverage.
CHPeconomicsinGujarat
CalorificValue
StationHeatRate
GasPriceinGujarat(Rs/scm)
ElectricityProduced(kwh)from1scmgas
VariableCostofPower(Rs/kwh)
FixedCostofPower(Rs/kwh)
TotalCost(Rs/kwh)
MerchantPowerRate(Rs/kwh)
Premium
kcal/scm
kcal/kwh
9,500
2,500
26.0
3.8
6.8
1.5
8.3
7.0
19%
Therefore,wemaintainacautiousapproachonGujaratGas,whichsells~70%ofits
volumestoindustrialcustomers.OurpositiveviewonIndraprasthaGasisduetoits
relatively low exposure to industrial volumes (less than 10%) while its new
acquisitions,CentralUPGas/MaharashtraNaturalGas,alsohaverelativelylower20
30%exposuretoPNG,andevenlessertoindustrialPNG.
Smallandmediumindustriesaremore
elastictogasprices,particularlyin
Gujarat,wherecheapgridpowerand
lowcostcoalhaveemergedasserious
contenderstogas
Indiannaturalgassupplyscenario
Higherdomesticgasoutputtargeted,weremaincautiouslyoptimistic
With lower gas prices, we do not see upstream development achieving an
acceleratedpace,particularlyinthedeepwaterblocksintheKrishnaGodavari(KG)
Withlowergasprices,wedonotsee
basin, which are the main sources of substantial production. We expect production
upstreamdevelopmentachieving
from existing fields to gradually decline to ~87mmscmd by FY20 from current
acceleratedpace,particularlyinthe
deepwaterblocksofKGbasin
~90mmscmd. APM gas output could remain largely flat (instead of lower) with
redevelopment activities in ONGCs fields and higher offtake from Oil India, as it
begins supplies to new customers such as Brahmaputra Cracker in the region. In
contrasttothis,privateandJVblockscouldseenaturaldeclines.
Domesticgasproductionuptickexpectedfromnewassets,butdeepwaterdevelopmentdependsongaspricing
mmscmd
DomesticGas
ONGCOnshore
ONGCOffshore
TotalONGCBase
OILNortheast
OILOthers
TotalOIL
TotalAPM
KGD6
PMT
Others
TotalPvt/JV
TotalExistingSupply
ONGCNonPSCNew
GSPCDDW
CairnRaageshwari
KGD6Satellitesect
KGDWN98/2
NEC25
CBM
TotalNewSupply
TotalDomesticProduction
InternalConsumption
GasFlared
GasAvailableForSale
Growth
FY10
FY11
FY12
FY13
FY14
FY15
FY16E
FY17E
FY18E
FY19E
FY20E
15.4
47.8
63.3
6.1
0.6
6.6
69.9
39.4
14.1
6.7
60.2
130.1
15.1
48.2
63.3
6.0
0.4
6.4
69.7
55.9
11.8
5.7
73.4
143.1
15.7
48.0
63.7
6.6
0.6
7.2
70.9
42.5
11.2
5.2
58.8
129.7
14.9
49.6
64.5
6.7
0.5
7.2
71.7
26.1
8.9
4.5
39.4
111.2
14.6
49.2
63.8
6.7
0.5
7.2
71.0
13.8
7.2
4.6
25.6
96.6
13.0
47.3
60.3
6.9
0.5
7.5
67.8
12.2
6.6
4.7
23.5
91.3
13.0
47.3
60.3
7.2
0.5
7.7
68.1
11.5
5.4
4.5
21.4
89.5
0.0
0.0
0.5
12.8
47.4
60.2
7.7
0.6
8.2
68.4
11.3
4.9
4.4
20.6
89.0
2.8
0.2
1.5
12.5
47.6
60.1
7.9
0.6
8.5
68.6
11.0
4.5
4.3
19.8
88.4
9.0
1.0
2.5
12.3
47.8
60.1
8.2
0.6
8.8
68.8
10.8
4.2
4.1
19.1
88.0
21.0
1.5
3.0
1.0
0.2
0.3
0.5
0.6
1.1
0.2
0.3
0.5
0.9
1.6
143.1
129.9
111.4
97.0
92.2
91.1
14.3
14.5
14.9
15.3
16.0
16.2
2.7
2.9
2.5
2.3
2.7
3.3
126.1
112.5
94.1
79.4
73.5
71.6
14.2 (13.6) (18.4) (14.7) (5.9) (1.9)
2.0
6.5
95.4
16.0
3.1
76.3
4.7
3.0
15.5
103.9
15.8
2.8
85.3
9.0
4.0
30.5
118.5
15.6
2.6
100.3
14.9
12.0
48.0
60.0
8.3
0.6
8.9
68.9
10.6
3.9
4.0
18.5
87.4
25.0
2.0
3.0
5.0
5.0
0.0
5.0
45.0
132.4
15.4
2.4
114.6
14.3
0.3
130.1
15.5
2.7
111.9
37.8
Source:MOPNG,Company,PPAC,PhillipCapitalIndiaResearch
In the intermediate period, gas production growth in new assets is likely to come
frommanysmallerblockssuchas(1)CairnIndiasRaageshwarifieldinRajasthan,(2)
CBM, though development of major assets like RILs Madhya Pradesh blocks would
dependonpricing,and(3)potentially,GSPCsKGbasinblock,whichhasnotstarted
commercial sales yet due to technical issues as a couple of more wells need to be
tested.ByFY18,weexpectONGCtohaveaportfolioofassetsthatarescheduledto
come onstream Daman (~8mmscmd of peak output), Vashishtha (~5mmscmd),
SouthBasseinEOR(4mmscmd),andNagayalanka(3.6mmscmd).Therefore,webuild
in15/30mmscmdofnewvolumesinFY18/19.FY20couldseefurtheruptickfromKG
basin,butitdependsonpricing.
ONGCsmajorgasprojectsoverFY1618
Major
Projects
DamanDevelopment
Vashishta&S1
SouthBasseinEOR
KGNagayalanka
Total
Capex
Rsbn
60.9
49.4
46.2
50.0
206.5
FY18Output
mmscmd
8.0
4.9
4.0
3.6
20.4
Completion
By
Apr17
Apr17
Sep16
Intheintermediateperiod,gas
productiongrowthinnewassetsis
likelytocomefrommanysmallerblocks
suchasCairnRajasthan,GSPCDDWand
CBM
MOPNGsdomesticgasproductionestimate
mmscmd
ONGC
OIL
PVT/JV
Total
FY15A
60.3
7.5
24.4
92.2
FY16E
61.4
8.2
22.8
92.5
FY17E
72.5
8.5
25.5
106.6
FY18E
86.7
8.8
31.4
126.9
Source:Company,MediaAnnouncements,PhillipCapitalIndiaResearch
Ourestimatesofdomesticgassupplies
Adjustingforflaringandinternalconsumption,weestimatedomesticgassuppliesto
rise to ~115mmsmcd by FY20 from 7273mmscmd currently. Our estimates
(FY16/17/18 at 91/95/104mmscmd) are lower than the governments
(97/106/138mmscmd). Cumulative supply growth in this period is likely to be
~40mmscmd.WhilemediareportshadsuggestedthatONGCplans80%growthingas
production in FY1520 to touch +115mmscmd, this would depend on gas pricing,
progress of KGDWN98/2 field development plan, and the pace of discoveries and
monetisationwedonotseevisibilityfortheseinthecurrentscenario.
WeviewCNG/DPNGpositively,as
currentconsumptionofthesesectorsis
lessthan10mmscmdandgascanbe
easilysourced
Basedonourproductionoutlook,weexpectnationallevelgastransmissionvolumes
toseesomeincreaseinourforecastperiod,thoughspecificregionsmaybenefitmore
thanothers.WeviewCNG/DPNGpositively,astheircurrentconsumptionislessthan
10mmscmdevenaccountingforanoverlyoptimistic20%yoygrowthinCNG/DPNG,
incremental gas needed in FY1620 would be ~3mmscmd annually. This can be
sourced from new output and diversion from existing noncore customers, as
CNG/DPNGisplacedonpriority.
MostLNGcapacityexpansiononlybyCY20,PLNGinsweetestspot
Even though Indias LNG capacity growth is more certain than its domestic gas
outlook,onlyoneterminal(PLNGsDahej)islikelytoseecapacityexpansion(of50%)
byFY18.However,betweenFY18andFY20,IndiasLNGregascapacitywouldseea
massive jump (to 60mmtpa from 27mmtpa) going by developments in five new
terminals, possible expansion in Shell Hazira, and likely debottlenecking in GAIL
Dabhol. Consequently, between FY15 to FY18 we estimate RLNG supply to grow
from~50mmscmdtoover80mmscmdwhilebyFY20E,itcouldgoupto107mmscmd
assuming50%terminalutilisation.
RLNGsuppliestogrowby50%inFY18,+100%inFY20vs.FY15
mmscmd
PetronetDahej
ShellHazira
GAILDabhol
PetronetKochi
GSPCMundra
GAILKakinadaFSRU
IOCLEnnore
HPCLChhara
HEnergyJaigarh
TotalRLNGSales
FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E FY19E FY20E
28.4 31.3 39.0 37.3 34.7 37.0
42.1
43.5
56.6
57.1
57.1
3.9 5.2 6.4 7.5 7.7 9.5
14.5
18.1
18.1
18.1
18.1
3.4 2.3
4.5
4.5
4.5
9.1
9.1
0.3 0.4
0.7
1.5
2.2
2.9
3.6
1.8
5.4
1.3
3.8
3.6
3.6
2.9
32.3 36.5 45.4 44.8 46.2 49.2
61.8
67.6
81.4
90.3 107.3
Source:Company,PPAC,PhillipCapitalIndiaResearch
Among new terminals, GSPC promoted 5mmtpa Mundra terminal and

GAIL/APIDC/Shell/GDFs 3.5mmtpa Kakinada FSRU are expected to commission in
FY19. CY20 will see IOCLs 5mmtpa Ennore, HPCLs 5mmtpa Chhara and HEnergys
8mmtpa Jaigarh terminals coming online. Other potential plants include Petronet
LNGs Dahej Expansion Phase IV (2.5mmtpa) and Gangavaram (5mmtpa),
ONGC/MRPL/BPCL/Mitsuis Mangalore FSRU (23mmtpa), Adani/GAILs Dhamra
(5mmtpa), Swan Energys Jafrabad FSRU (5mmtpa) and HEnergys East Coast
(5mmtpa)terminalswehavenotaccountedfortheseinourestimatesconsidering
thepreliminarynatureofplanninganddevelopment.
OnlyoneLNGterminal(PLNGsDahej)is
likelytoseecapacityexpansion(of50%)
byFY18
AhostofLNGterminalstocommissionbyFY19/20
mmtpa
Dahej
Hazira
Dabhol(Effective)
Kochi
TotalExistingTerminals
Mundra
KakinadaFSRU
Ennore
Chhara
Jaigarh
TotalNewTerminals
TotalLNGCapacity
FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E FY19E FY20E
10.0 10.0 10.0 10.0 10.0 10.0
10.0
10.0
15.0
15.0
15.0
3.6 3.6 3.6 3.6 5.0 5.0
5.0
5.0
5.0
7.5
7.5
2.0 2.0
2.0
2.0
2.0
5.0
5.0
5.0 5.0
5.0
5.0
5.0
5.0
5.0
13.6 13.6 13.6 13.6 22.0 22.0
22.0
22.0
27.0
32.5
32.5
5.0
5.0
3.5
3.5
5.0
5.0
8.0
0.0
8.5
26.5
13.6 13.6 13.6 13.6 22.0 22.0
22.0
22.0
27.0
41.0
59.0
Source:Company,PPAC,PhillipCapitalIndiaResearch
Realistically, Petronet LNGs 5mmtpa Phase3 Dahej expansion is arguably the only
fully visible LNG capacity expansion with 50%+ physical and financial progress in
MarchSeptember 2015. We hence are more inclined towards beneficiaries of this
project,ratherthanhavingabullishoutlookonthegassectorasawhole.
SlowdowninsigningnewtermLNGdeals
Consideringtheupheavalinenergymarketsandpricingissues,Indiahasbeenslowin
signinglongtermLNGdealsthoughcurrentscenarioprovidesopportunities.Almost
13mmtpa of yet to commence long term (20years+) LNG contracts have been
earliersignedbyIndiancompanies.
PetronetLNGs1.44mmtpaGorgondeal,tobeginFY16endorFY17
PotentialextensionofGSPCBGdealby1.25mmtpabyFY17/18.
GAILhassigned5.8mmtpafromtheUSbasedonHenryHubpricescoupledwitha
fixedcomponent.
GAILs2.5mmtpawithGazpromstartingFY18endorFY19.
IOCLs1.9mmtpavolumesfromNorthAmericastartingFY19/20.
GSPCandPetronetLNGsMOUsfor9mmtpaofvolumeswithGazpromandUS
based United LNG respectively the companies expect these volumes to be
absorbed by incremental LNG capacities coming up towards the end of this
decade.
Consideringtheupheavalinenergy
marketsandpricingissues,Indiahas
beenslowinsigninglongtermLNG
dealsthoughcurrentscenarioprovides
opportunities
TermLNGdeals:Lowonexecution,butinlinewithcapacityoutlook
1213mmtpaoflongtermLNGcontractedbyIndianplayers
LongTermLNGContracts
PetronetLNGRasgas,Qatar
PetronetLNGRasgas,Qatar
GSPCBG,Portfolio
PetronetLNGExxon,Australia
GAILChenierre,USA
GAILDominion,USA
GAILGazprom,Russia/Portfolio
IOCLMitsubishi,USA
IOCLPetronas,Canada
Total
Volume(mmtpa)
Term(yrs) Commence
Pricing
5.00
25
FY05 OilIndexed
2.50
20
FY10 OilIndexed
1.252.50
20
FY15/16 OilIndexed
1.44
20
FY17 OilIndexed
3.50
20+10
FY18/19 HenryHub
2.30
20
FY18/19 HenryHub
2.50
20
FY18/19 OilIndexed
0.70
20
FY19 OilIndexed
1.20
20
FY20
NA
20.421.6(1213innewcontracts)
Source:Company,Mediareports,PhillipCapitalIndiaResearch
We believe the impact of higher RLNG supplies on the national gas grid and other
distribution companies would be visible only in the next decade when the various
greenfieldterminalsstabilise.
WebelievetheimpactofhigherRLNG
suppliesonthenationalgasgridand
otherdistributioncompanieswouldbe
visibleonlyinthenextdecade
LNGpricingoutlook
Crudeoilpricesremainuncertain,gaspricestoadjust
Crude oil prices have continued to hover around US$ 50/bbl. While global demand
outlook has improved, the oversupply scenario persists with impending Iranian
volumes,swingproductionfromUSshaleplayers,andOPECstillundecidedonoutput
control. Hence, we build in an oil price of US$ 5563/bblin our estimates (forecast
periodFY1620)tounderstandthegaseconomics.
FY1620:AssumingBrentcrudeatUS$5563/bbl,Rs/US$at6563
BrentPrice(US$/bbl)
Crudecontinueshoveringat~US$
50/bbl,recoveryinpricesseems
uncertain
Currency(Rs/US$) RHS
140
90
120
80
100
65.0
70
64.0 63.5
80
60
60
55.0
40
62.0
60.0
50
FY20E
FY19E
FY18E
FY17E
FY16E
FY15
FY14
FY13
FY12
FY11
FY10
FY09
FY08
30
FY07
0
FY06
40
FY05
20
Source:Bloomberg,PhillipCapitalIndiaResearch
Natural gas, particularly liquefied natural gas (LNG), is not yet an exchangetraded
commodityitspricingdependsonspecificbuyersellerinteractions.
Spot LNG prices reflect the actual demandsupply situation and gas
competitivenessinabetterway.
TermLNGprices(boundbycontracts)aremoreinelastic.
Midterm LNG is a comparatively smaller segment, but it is gaining ground
becauseofthecurrentvolatilityinoilandgaspricesitspricingrangesfromoil
linkedandhubbasedtoahybridofboth.
IndianspotLNGpriceshavefallen60%+sincepeakinglastinMarch2014
SpotLNGPrices
25
US$/mmbtu
20
19.4
15
10
7.0
Dec15
Oct15
Aug15
Jun15
Apr15
Feb15
Dec14
Oct14
Aug14
Jun14
Apr14
Feb14
Dec13
Oct13
Aug13
Jun13
Apr13
Feb13
Dec12
Source:Platts,PhillipCapitalIndiaResearch
Welookatspot,short/midterm,andlongtermLNGpricingtogaugehowLNGprices
could pan out ahead. LNG pricing will have a significant bearing on the Indian gas
sector during our forecast period, as most incremental gas during this time would
comeintheformofLNG.
SpotLNGpricesreflecttheactualLNG
demandsupplysituation
AsianspotLNGpricestoconsolidatetowardsoilparity
Spot LNG prices depend on demandsupply dynamics while demand is linked to
economicconditionsincustomercountriesandtheirpropensitytoconsume,supply
dependsonLNGproductionoutlookandsupplierspropensitytosell.
We expect LNG prices to achieve parity with liquid fuels as (1) demand from major
importers (Japan, Korea, and China) peaks, and (2) there will be significant supply
additionsfromAustraliaandtheUS.SpotLNGpriceshavealreadycrashedby60%+
from recent peaks and currently hover at ~US$ 7.0/mmbtu, at which level they are
still1020%higherthanFO.Theyarelikelytocorrectfurtherunlessoilpricesrecover.
WeexpectLNGpricestoconsolidate
andachieveparitywithliquidfuels
SpotLNGpricestoattainnormativeparitytooil
OuroutlookonspotLNGpricesismutedconsideringitselasticitytoglobaldemand
supply balance and alternate fuels such as FO. As per Platts, Japan Korea Marker
(JKM)spotLNGpriceforDecember2015deliveryatUS$7.3/mmbtu,isstill20%more
expensivetocomparableFO(180cst).Chinascoalpricesalsoremaincompetitiveat
US$2.5/mmbtu.Hence,currentspotLNGpricesofUS$7/mmbtucouldadjustfurther
toachievenormativeparitywithoilunderareasonablescenario.However,lookingat
theLNGoversupplysituation,pricescoulddirectlyfall.
PlattsJKMspotLNGvs.fueloilandcoal
ExpectspotLNGpricesatUS$810/mmbtuinFY1720
JKMSpotLNG
QinhuangdaoChinaCoal
180CSTFuelOil
25
18
15.0
15
20
US$/mmbtu
IndianSpotLNGPrice(US$/mmbtu)
16.7
15.6
12.5
12
15
10
7.5
8.0
8.5
9.0
9.5
3
Dec15
Sep15
Jun15
Mar15
Dec14
Sep14
Jun14
Mar14
Dec13
Sep13
Jun13
Mar13
Dec12
0
FY12
FY13
FY14
FY15 FY16E FY17E FY18E FY19E FY20E
Source:Platts,PhillipCapitalIndiaResearch
WehaveassumedamoreliberalpricetrajectorybybuildinginUS$7.5permmbtuin
FY16 and a US$ 0.5/mmbtu annual increase thereafter, based on our oil price
estimates.
In the last 45 years, annual spot volumes have been 6070mmtpa (a fourth of the
totalLNGtrade).Withcurrentvolatilityandlackoflongtermvisibility,theshareof
spotLNGislikelytoincrease,aspricesremainlowercomparedtooillinkedtermLNG
(especially those with sticky trailingaverage oilpricing slopes). Spot LNG trade has
grown over the last few years due to (1) expiry of many longterm contracts, (2)
growth of flexible destination supplies, (3) increase in portfolio players, and (4)
opportunitydemand.
Wehaveassumedamoreliberalspot
LNGpricetrajectorybybuildinginUS$
7.5permmbtuinFY16andaUS$
0.5/mmbtuannualincreasethereafter
Oillinkedshort/midtermLNGpricingtoremainatreasonablelevels
Short/mediumterm contracts, which can range up to five years, have also found
flavourinplayersthatarenotinterestedinlongtermcontractsdueto(1)volatility,
(2)thelikelihoodofgettingbettercontractsinfuture,and(3)expectationsofeithera
loose/tight market by the buyer/seller. Although the share of such contracts was
below5%inFY14,weexpectittogrow.ThiskindofLNGpricingisgenerallyoillinked
with a 12.514.5% slope to crudes such as Japanese Customs Cleared (JCC) at a 36
monthstrailingaveragepricing.
Recently, there havebeen some hybrid arrangements, linked tootherhubs suchas

NationalBalancingPointNBP,andZeebrugge.Underthese,atUS$60/bbl,thelanded
priceofLNGinIndianportswouldbeUS$7.59.0/mmbtu.Inourcoverageuniverse,
GujaratGas(throughGSPC)hasasimilarcontractwithBGgroup,whereLNGprices
areinthisrange.
AdjustmentsinlongtermLNGcontractsduetounfavourablepricing
Pricing of existing longterm LNG contracts in Asia Pacific and Middle East regions
continues to be oil linked with fall in crude prices, benefits have accrued to
consumers. However, some trades, such as the Qatar/RasGasIndia/PLNG contract
hadfacedpressure(inthiscontractthetrailingoilpricingaveragewassetforthepast
fiveyears, which kept LNG prices high at US$ 1213/mmbtu almost twice that of
currentspotLNG).
Thisledto~32%defermentofQatartermvolumesbyIndianofftakersduetolower
demandfromendconsumers,someofwhomsufferedbusinesslossesduetohighly
adverse economics compared to liquid hydrocarbons and spot LNG. Importer
Petronet LNGand offtakersGAIL, IOCL, and Bharat Petroleum, with the support of
the Indian government and MOPNG, are currently negotiating favourable terms
(expected to include postponing/waiving takeorpay penalties) and adjustments in
thepricingformulatomakeitmoreaffordable.
As per recent reports, RasGas is ready to modify the gas sales and purchase
agreement (GSPA) with PLNG. While details are not clearly known, as per media
reports,RasGashasmodifiedtheformulatoanaverageofjustthreemonthstrailing
oil prices (from 60months trailing average JCC crude price), though it may have
raisedtheslopeto~1314%from12.67%.ThismeansQatartermLNGpriceswillfall
tolessthanUS$7/mmbtu(deliveredprice)fromUS$12.3/mmbtucurrentlythisfall
willbringRasGaspriceinlinewithcurrentspotLNGprice.
As LNG becomes a buyers market, longterm contracts have seen other consumer
friendlydevelopmentssuchascancellationofthedestinationclause,whichgivesin
trading flexibility to importers and has led to the growth of storagereloading
business in many LNG regas terminals. Almost 25mmtpa of 10years+ longterm
contractshavebeensignedinCY14,manyofthemfromtheUS.However,thisyear
theremaynotbeasmanycontractsconcluding.
USandoillinkedtermLNGpricestoremainatsimilarlevels,Gorgonatadhigher
For US termLNG volumes, prices are based on Henry Hub, which currently is
exceptionallylowat~US$2/mmbtu.However,forsuppliestoIndia(assuminga
~US$ 1/mmbtu recovery in US gas prices from opening up of exports), a fixed
component of ~US$ 3/mmbtu and shipping of US$ 1.5/mmbtu would result in
deliveredpricesthataresimilartoAsiaPacificoillinkedtermcontracts.
SometradeslikeRasGasPLNGcontract
hadwitnessedpressureduetotrailing
oilpricingaveragebeingsetforlastfive
years,whichhadkeptLNGpriceshigh
atUS$1213/mmbtu,almosttwicethat
ofcurrentspotLNG
AsLNGbecomesabuyersmarket,long
termcontractshaveseenother
consumerfriendlydevelopmentssuch
ascancellationofthedestinationclause
ComparisonofoilpricestooillinkedAsiaPacificandHenryHublinkedUSLNG
OilPrice(US$/bbl)
50
60
70
80
90
100
110
120
FOPrice(US$/bbl)
42
53
63
73
83
93
103
113
FOPrice(US$/mmbtu)
6.7
8.4
9.9
11.5
13.1
14.7
16.3
17.9
TermLNGPriceatVariousOilLinkedSlopes+freightetc.(US$/mmbtu)
12.5%
6.8
8.0
9.3
10.5
11.8
13.0
14.3
15.5
13.5%
7.3
8.6
10.0
11.3
12.7
14.0
15.4
16.7
14.5%
7.8
9.2
10.7
12.1
13.6
15.0
16.5
17.9
HenryHubPriceEstimate(US$/mmbtu)
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
USLNGLandedPriceInIndia(YS$/mmbtu)
8.0
8.5
9.1
9.7
10.3
10.8
11.4
12.0
AtHenryHubpricesofUS$34/mmbtu+shippingandotherexpenses,thedelivered
priceofUSLNGinIndiawouldbeUS$89/mmbtu.DeliveredpriceofoillinkedLNG
atUS$60/bbloilpricetoIndiawouldalsobeUS$89/mmbtu(incorporatinga12.5
14.5%slopeandUS$0.5/mmbtuofshippingcharges).
DeliveredpriceofGAILsUSLNGcouldbeUS$89/mmbtu
Eqvt.OilPrice(US$/bbl)
HenryHubPrice
Slope@115%
FixedCapacityCharge
ShippingCost
DeliveredPrice
50.0
3.0
3.5
3.0
1.5
8.0
60.0
3.5
4.0
3.0
1.5
8.5
AtHenryHubpriceofUS$34/mmbtu+
shippingandotherexpenses,the
deliveredpriceofUSLNGinIndiawould
beUS$89/mmbtu
70.0
4.0
4.6
3.0
1.5
9.1
Gorgon would be a tad higher at ~US$ 9.5/mmbtu landed price due to a slope of
14.5%toJCCcoupledwithshippingchargeof80cents/mmbtu,whichmaybehigherif
deliveryisroutedtoDahej.
Gorgongastobedeliveredat$9.5/mmbtu
US$/mmbtu
FOBprice
Shippingcost
Insurance
CIFprice
AtUS$60/bblJCC
8.7
0.8
0.0
9.5
GorgonLNGpriceswouldhoweverbea
tadhigherat~US$9.5/mmbtulanded
priceduetoaslopeof14.5%
Source:Govt.reports,mediareports,Company,PhillipCapitalIndiaResearch
Swappingcansaveonlongdistancefreightcosts
GAIL is currently contracting customers for its US LNG and has recently confirmed
that it has tied up customers in India as well. However, it has also swapped some
volumestosaveonfreightof~US$1.52.0/mmbtu.Aspermediareports,0.5mmtpa
of US LNG has already been sold to Shell; GAIL plans to eventually swap up to
2mmtpafromitsUSportfolio.
GenerictermLNGeconomicsversusFOandnaphtha
Normalised
oilpriceat
US$60/bbl
FOat
Naphthaat
USLNG
US$7.5/bbl
FOat
US$2/bbl Naphthaat landedprice
discount US$/mmbtu
discount US$/mmbtu ($/mmbtu)
US$52.5/bbl
8.4
58
11.1
8.5
versusFO
1%
GorgonLNG
versus landedprice
naphtha ($/mmbtu)
23%
9.5
Source:Govt.reports,mediareports,Company,PhillipCapitalIndiaResearch
WhilenewprojectdevelopershaveshowninclinationtowardshybridLNGcontracts,
in the current scenario, oillinked LNG pricing would also be at similar levels. We
believethatatUS$60/bbloilprice,theLNGsectorwouldstarttostabiliseintermsof
competitiveness, as oillinked and Henry Hub/hybridlinked prices would be at par
with FO. Spot LNG and Qatar RasGas LNG prices at US$89/mmbtu would also see
improvementincompetiveness,thoughGorgonwouldbesomewhatexpensive.
versusFO
13%
versus
naphtha
14%
Domesticgaspricingoutlook
PricestocorrectfurtherinFY17
Indias domestic natural gas prices (based on the November 2014 government
approved formula) would remain low for an extended period. Producers have
appealedforarevisionintheformula,whichisbasedonvolumeweightedaverage
price of major gas centres like Henry Hub (US); Alberta (Canada); NBP (UKEurope)
andRussia.
EstimatedomesticgaspricestodeclinetoUS$3.7/mmbtuinFY17
6.0
Domesticgasproducershaveappealed
forarevisioninthepricingformula
Dom.GasPrice,NCV($/mmbtu)
5.0
4.0
3.0
5.61
ConsideringanoilpriceofUS$50/bbl
andwithcurrentspotLNGprices,the
formulaislogicalifnotperfect
5.17
4.24
2.0
3.73
1.0
0.0
H2FY15
H1FY16
H2FY16
H1FY17E
Source:Bloomberg,BP,PhillipCapitalIndiaResearch
ConsideringanoilpriceofUS$50/bblandwithcurrentspotLNGprices,theformula
islogicalifnotperfect.Acomparisonofdomesticnaturalgasprices(US$4.2/mmbtu)
with current spot LNG prices of US$ 7/mmbtu implies a wellhead price of ~US$
4/mmbtu (by striking off US$ 2/mmbtu in liquefaction cost, US$ 0.5/mmbtu in
shipping,and~US$0.5/mmbtuinotherprocessingcharges)bythiscalculation,spot
LNG prices compare well with domestic gas prices. However, in the event of a
recovery in petroleum and LNG prices, the formula may not be rational due to the
Russian component, which is both depressed and nontransparent. Gas producers
have also highlighted that the formula is biased towards gassurplus countries and
henceisnotreflectiveofadeficitmarketlikeIndia.
Domesticnaturalgaspricesbasedoncurrentscenarioandformula
DomesticgaspricesforH2FY15(reflectingoilatUS$100/bbl+)
US$/mmbtu
USA+Mexico
Canada
NBPEurope
Russia
Weight.Aver.
OnNCVbasis11%markup
Qty(bcm)
820
104
651
414
1988
Price
4.3
3.7
9.7
2.8
Markdowns NetGasPrice
0.8
3.5
0.8
3.0
0.8
8.9
0.3
2.5
5.1
5.6
DomesticgaspricesforH1FY17E(reflectingoilatUS$50/bbl)
US$/mmbtu
USA+Mexico
Canada
NBPEurope
Russia
Weight.Aver.
OnNCVbasis11%markup
Qty(bcm)
845
104
600
409
1959
Source:Bloomberg,CanadaGovt,BP,PhillipCapitalIndiaResearch
Price
2.8
2.6
6.8
2.8
0.8
2.0
0.8
1.8
0.8
6.0
0.3
2.6
3.4
3.7
WeattempttosimplifytheformulaandtestitsintegritybyremovingtheRussianand
Canadian components, thereby adhering to the demand that the formula should
reflectaconsumingmarket(NBP/Europe)andaneutralmarket(HenryHub/US).We
alsoassumeafuturescenariowhereoilpricesarebacktoUS$100/bbl+andwhere
theUSstartsexportingLNG,therebybuildinginUS$6/mmbtuofHenryHubprices.
WefindthatagainstagaspriceofUS$4.1/mmbtuinH1FY17,futurepricesinsucha
scenario would move up to ~US$ 7.7/mmbtu, which seems remunerative for
developingdomesticgasassets.
Simplifying the formula could be an easy way for the government to manage
opposition to this formula. The government is currently studying the Kelkar
Committees report this committee was formed to suggest a transition roadmap
towardsmarketbasedgaspricing.Thecommitteehadrecommendedmarketbased
pricingbasedonmaximumopportunityvalueandonanarmslengthtransactionwith
somelinkagetoalternativeliquidfuelsintheperiodoftransition.
Simplifyingtheformulacouldbean
easywayforthegovernmentto
manageoppositiontothisformula
DomesticgaspricessansRussia/Canada,assumingUSLNGexports
DomesticgaspricesforH1FY17(reflectingoilatUS$50/bbl)
US$/mmbtu
USA+Mexico
NBPEurope
Weight.Aver.
OnNCVbasis11%markup
Qty(bcm)
845
600
1446
Price
2.8
6.8
0.8
2.0
0.8
6.0
3.7
4.1
DomesticgaspriceswithUSLNGexports,US$100oil
US$/mmbtu
USA+Mexico
NBPEurope
Weight.Aver.
OnNCVbasis11%markup
Qty(bcm)
845
600
1446
Price
6.0
10.0
0.8
5.3
0.8
9.3
6.9
7.7
IftheRangarajanCommitteesformulawereinplace,LNGpricewouldhavefallento
US$6/mmbtubyFY17fromUS$8.5/mmbtuinCY14.Interestingly,thesavinggrace
herewouldhavebeenUS$1213/mmbtuofQatartermLNGprices.Withtheseprices
nowlikelytobesimilartospotLNG,domesticgaspriceswouldhaveactuallybeenat
US$4.5/mmbtu.OurpointisthatatcurrentglobalpetroleumandLNGprices,higher
domestic gas prices may not be warranted. The same situation in China backfired
with sharp slowdown in demand and the government reducing domestic gas prices
byupto30%.
Ourbasecasedomesticgaspricingestimatefortheforecastperiod
(US$/mmbtu)
USA+Mexico
Canada
NBPEurope
Russia
Weight.Aver.
OnNCVbasis11%markup
Qty(bcm)
870
110
650
420
2050
Price
4.0
3.8
6.5
2.8
Markdowns
0.8
0.8
0.8
0.3
IftheRangarajanCommitteesformula
wereinplace,LNGpricewouldhave
fallentoUS$6/mmbtubyFY17from
US$8.5/mmbtuinCY14
Processing
3.2
3.0
5.7
2.5
3.7
4.2
In our basecase for FY1620, we continue to assume the current formula, with oil
priceatUS$5563/bbl.IftheUSstartsLNGexports,USandCanadiangaspricescould
rise, but NBP prices are likely to be capped due to the global supply rebalancing
therefore,webuildinUS$6.5/mmbtuNBPLNGpriceoverFY1620.WekeepRussian
prices unchanged at US$ 2.8/mmbtu. Based on these assumptions, we estimate
domesticgaspricesatUS$3.94.2/mmbtuinFY1720.
Basedonourassumptions,weestimate
domesticgaspricesatUS$3.9
4.2/mmbtuinFY1720E
Even at US$ 4/mmbtu, CNG prices for vehicles are not significantly cheaper than
petrol and diesel (if we strike off taxes and do not incorporate any fuel economy
gains). However, adjusted for mileage, CNG would give a 36% cost saving versus
petrol and 11% versus diesel. We remain positive on the CNG story due to policy
triggersandexpectthetaxdynamicstoremainfavourable.
CNGvs.liquidalternativefuels:Coreeconomics(atUS$4550/bbloil)
CNG
Deliv.GasCost(US$/mmbtu) 5.0
InRs/scm
11.5
InRs./kg
15.4
Norm.GrossMargin
14.0
NetPrice
29.4
CNGVs.
MileageAdjustedPrice
29.4
CNGVs.
Petrol
C&FPrice(US$/bbl)
60.0
InRs/ltr
25.1
GrossMargin
3.3
DealerCommission
2.3
NetPrice
30.7
CNGVs.
5%
39.9
CNGVs.
36%
Diesel
C&FPrice(US$/bbl)
60.0
InRs/ltr
25.2
GrossMargin
3.0
DealerCommission
1.4
NetPrice
29.6
CNGVs.
1%
32.5
CNGVs.
11%
Assuming CNG will give 30% higher fuel economy vs. petrol and 10% vs. diesel;
assumedCNGgrossmarginatRs10.5/scm
In Domestic Piped Natural Gas (DPNG), the economics are better since it is 11%
cheaperthannonsubsidisedLPG.
EconomicsofDPNG/LPG(nonsubsidised)
Delhi(IndianOilCorp.IOCL)
LPGprice/cyl(Rs)
LPGprice/kg(14.2kgcyl)
Calorificvalue(Kcal/kg)
LPGprice/mncalories(Rs)
Delhi(IGL)
Dom.PNGprice(Rs/scm)
Calorificvalue(Kcal/scm)
PNGprice/mncalories(Rs)
Pricedifference(%)
545.0
38.4
11,900
32.3
24.7
9,000
27.4
15%
Thegovernmentisworkingonapremiumfortoughdeepwater,highpressure,high
temperaturegasandweendorsethis,consideringtheriskrewardratiointhesekinds
of projects. However, most of the Administered Pricing Mechanism (APM) and
domestic gas pricing should be based on a simplified formula and should reflect
alternateliquidfuelpricing.
Recent media articles have suggested that the Finance Ministry is not keen on
revisinggaspricesevenpartiallyevenfordifficultassetssuchasdeepwater,high
pressure/hightemperaturereasonsgivenarethatthegasmarketsinIndiaarenot
matureandthatmajorconsumingsectorssuchaspowerandfertiliseraresubsidised.
While unveiling its new upstream licensing policy, the government has proposed
marketbasedpricingforgas,butonlyfornewassets.
Thegovernmentisworkingona
premiumfortoughdeepwater,high
pressure,hightemperaturegas
RasGasLNGContract:Buildingexpectedchanges
The 7.5mmtpa QatarRasgas termLNG contract had been an obvious concern for
Indiadue to its expensive and stickypricing. The reasonfor this istheformula (60
monthstrailingaverageJCCpricewhiledeterminingthecapandfloor).Accordingto
this formula,benchmark oil prices as onOctober2015 were still at US$ 97/bbl and
wouldonlydeclinebyUS$0.51/bbleverymonth.Basedonouroilpriceassumption
ofUS$5563/bblinFY1620,QatarLNGpriceswouldhitabottomofUS$7.9/mmbtu
by April 2019 adding US$ 0.3/mmbtu of shipping implied a landed price of US$
8.2/mmbtu.
TheRasgasLNGpricingformula
Originalformula
FOBprice=Po*JCCt/$15
WherePois1.9/mmbtu,JCCtis12monthaverageJCCprice
tismonthforwhichLNGpriceiscalculated
Cap=[(60N)*20+(N*A60)]/60+4
Floor=[(60N)*20+(N*A60)]/604
N=1forJan09andwillincreaseby1everymonthtillDec13,thenshallremain60
A60is60monthsaverageofJCCprice
The7.5mmtpaQatarRasgastermLNG
contracthasbeenanobviousconcern
forIndiaduetoitsexpensiveandsticky
pricing
Expectedrevisedformula
FOBprice=Brent3*Revisedslope
WhereBrent3islast3monthaverageBrentprice
Revisedslopemayrangebetween1314%
Capandfloormechanismremoved
Source:RangarajanCommitteeReport,PhillipCapitalIndiaResearch
BecauseRasGasLNGwasalmosttwicespotLNG,PLNGandofftakers(GAIL,IOCLand
BPCL) had initiated 32% deferment to Annual Contracted Quantity (ACQ) starting
Q4FY15,alongwithnegotiationsforadjustingthecontractonmorefavourableterms.
ThispartiallyhelpedconsumersmitigatehighLNGcostsbyblendingQatarwithspot
LNG. However, with the calendar year drawing to a close, as per the contract, the
receivers/offtakers/customerswouldhavehadtomeettheshortfallquantityorface
takeorpay charges, which would have cost them an estimated at US$ 1.5bn (Rs
100bn).
Customerprofileofthe7.5mmtpaQatarcontract
In
Fertiliser
Power
SpongeIron
Petchem+LPG
Industrial&Citygas
Uncontracted
Total
mmscmd
9.8
5.2
1.7
2.0
2.0
6.2
26.9
mmt
2.7
1.4
0.5
0.6
0.6
1.7
7.4
Recentreportssuggest,RasGas
agreeingtomodifytheformula,thereby
loweringtermLNGprices
%
36%
19%
6%
7%
7%
23%
100%
Source:Channelchecks,PhillipCapitalIndiaResearch
However as per recent media reports, following negotiations involving Indias

petroleumminister,DharmendraPradhan,RasGasisnowreadytomodifytheGSPA
with Petronet LNG. While there has not been any official announcement, as per
mediasources,thesalientfeaturesoftherevisedcontractwouldbe:
Inprinciple agreement to postpone collection of penalties (US$ 1.5bn) due to
32%volumedeferment.AmountwouldhavebeenadjustedfromlongtermLNG
prices over the remaining 13 years of the contract apparently, RasGas has
agreedtowaivethisoff.
PLNGandRasGaswanttofinaliseadealnextmonthtweakingthecontractand
arecurrentlyworkingonmicrotermsandconditions.Thereviseddealislikelyto
adjust LNG prices to threemonths trailing Brent (vs. 60months trailing JCC
average currently. However, the slope may have been upped from current
12.67%.
Ata1315%Brentslope,modified
RasGastermLNGdeliveredpriceswould
hencereduceto~US$7/mmbtusimilar
tospotLNGprices
NewRasGasLNGpricing
3monthstrailingaverageBrentprices(US$/bbl)
SlopetoBrentprice
RasGastermLNGFOBprice(US$/mmbtu)
Shipping+insurance(US$/mmbtu)
DeliveredpriceatDahej(US$/mmbtu)
47
12.67%
6.0
0.3
6.3
47
13.5%
6.4
0.3
6.7
47
14.5%
6.8
0.3
7.1
Source:Mediareports,Bloomberg,PhillipCapitalIndiaResearch
WithKochiterminalseeinglowutilisationduetopipelineissues,Gorgonvolumesare
also likely to be diverted to Dahej terminal. Hence, this terminal would have to
operateat100%+capacityassoonasPhase3(15mmtpa)iscommissionedinFY18.
Our volume trajectory for Dahej terminal is 116%/120% capacity utilisation in

FY16/17 driven by higher RLNG demand from stranded power plants though
recovery of RasGas volumes would lower this in CY16. We have also assumed
0.44mmtvolumesfromGorgoninFY17.FY18wouldsee~100%terminalutilisationas
tolling contracts begin on expanded capacity and Gorgon volumes cross 0.9mmt.
FY19 onwards, we expect Dahej to operate at a peak nameplate capacity of 105%
implying15.75mmtpavolumes,inclusiveofRasGas.
Dahejterminalscapacitybooking
Current
Capacity
Volumes
Rasgas
GAIL
GSPC
OtherTP
Spot
FY15
10.00
10.20
6.76
1.00
0.50
0.54
1.39
Nameplate
10.00
7.50
1.10
1.25
Future
Capacity
Volumes
Rasgas
GAIL
GSPC
IOCL
BPCL
TorrentPower
Nameplate
15.00
15.75
7.50
2.50
2.25
1.50
1.00
1.00
RasGasandGorgonofftakebreakup
Players
Total
GAIL
IOCL
BPCL
___________mmtpa___________
Rasgas
Gorgon
7.50
1.44
4.50
0.43
2.25
0.43
0.75
0.58
____________%____________
Rasgas
Gorgon
100%
100%
60%
30%
30%
30%
10%
40%
Source:Company,MediaReports,PhillipCapitalIndiaResearch
Dahejterminalwouldnotfaceanytollingissueas~4mmtpavolumesunderPhase3is
with GAIL, IOCL and BPCL who are offtakers for both RasGas and Gorgon volumes
andarealsoPetronetLNGspromoters.However,FY1922wouldalsoseethestartof
other longterm volumes such as GAILs US and IOCLs North American contracts.
With Dahej at full capacity, other terminals would have to be ready for these
volumes. We believe Mundra and Hazira expansion totalling ~7.5mmtpa would be
availablebythen.ConstructionofbreakwaterfacilityinDabholwouldalsoraisethe
terminalseffectivecapacitytoanameplatelevelof5mmtpafrom2mmtpacurrently.
Kochi terminal could also see some headway. In FY20, IOCL would commission its
Ennore5mmtpacapacity.
WeexpectDahejtooperateatapeak
nameplatecapacityof105%implying
15.75mmtpavolumeinFY18
UrjaGangatoboostthenationalgrid
The GAILpromoted JagdishpurHaldia gas project, rechristened Urja Ganga, is the

firstandcurrentlyonlymajorgasprojectoftheNationalDemocraticAlliance(NDA)
government that is seeing speedy implementation. Once complete, this project will
provide (1) extensive connectivity between the east and west, and (2) access to
western gas sources for the central heartlands. The 16mmscmd capacity, 1,850km
pipeline will connect Jagdishpur in Uttar Pradesh (HVJ tap off) with Haldia in West
Bengal and is likely to cost Rs 110bn. It will provide natural gas supplies to eastern
UttarPradesh(UP),Bihar,Jharkhand,andWestBengal.
JagdishpurHaldiapipelinewillprovide
naturalgassuppliestoeasternUttar
Pradesh,Bihar,Jharkhand,andWest
Bengal
Phase1ofthisprojectinvolvesa750kmslineof7.4mmscmdcapacityatacapexofRs
39.6bn.AnchorloadcustomerswouldbeGorakhpurandBaraunifertiliserplantsand
IOCLs Barauni refinery, which we estimate would consume over 6mmscmd of gas
(80%+capacity).
Phase1 would also provide gas for CGD networks along the pipeline, particularly
importantcentressuchasVaranasiandPatnaaround413kmofthepipelinewould
gothroughBihar.ThisphasewillconnectGayainBiharwithspurlineconnectivityto
BarauniandPatnaandisexpectedtobecompletebytheendof2018.
Phase 2 could be ready by CY20 and will go further through Jharkhand to West
Bengal. Jharkhands demand potential is estimated at 8.8mmscmd along the six
districts(315kms)thatthepipelinewouldpassthrough.Anchorloadcustomershere
would be the Sindri fertiliser plant and Bokaro steel plant while CGD opportunities
will arise in Ranchi, Dhanbad, and Jamshedpur. In West Bengal, the Haldia refinery
willbeamajorcustomer.
We believe this pipeline could be important for western LNG terminals considering
the large area it will cover and resultant significant demand potential from these
regions. Among priority sectors in the east, only city gas distribution (CGD) sector
would be entitled to domestic gas. This is because incremental gas supplies from
western offshore and KG fields would largely be allocated to the power sector in
southern,western,andnorthwesternregions.TheavailabilityofregionalCBMcould
alsosatisfyCGDsgasrequirement.
Phase2couldbereadybyCY20andwill
gofurtherthroughJharkhandtoWest
Bengal
Revived fertiliser plants, refineries, steel plants, and other industrial customers are
likelytosourceRLNGandcanopenupnewmarketsforGujaratbasedLNGterminals
suchasPetronetDahejandShellHazira.Thoughacoupleofeastcoastterminalsare
planned(AdaniDhamra,HEnergyEastCoast),theyareinverypreliminarystagesand
arelikelytocommissiononlyafter2020.
We believe that by FY20, phase1 of this pipeline can create 67mmscmd demand
from fertiliser plants, refineries, and industrial customers for RLNG suppliers. This
could be one of the reasons behind aggressive capacity booking at Petronet LNGs
DahejterminalbyplayerssuchasGAIL,IOCL,andBPCL.Webelievethat~2mmtpaof
LNGcouldbesoldthroughthispipelinebyFY20,whichcouldrisesignificantlyinthe
comingdecade.
WebelievethatbyFY20,phase1ofthis
pipelinecancreate67mmscmd
demandfromfertiliserplants,
refineries,andindustrialcustomersfor
RLNGsuppliers
Policyfocusonthegasdistributionsector
The gasdistribution sector has remained prominent among policy makers,
administration, and the judiciary with multiple agencies and institutions working
towardsthedevelopmentandgrowthofthisindustry.Thesepolicytriggerssupport
thelongtermviabilityofthissector.InanenergydeficitcountrylikeIndiawheregas
resources are available more than oil, downstream gas industry would continue to
progress.
Centralgovernment:Thecentralgovernments(UnitedProgressiveAlliancetowards
theendofitstermandNDAcurrently)haveinitiatedseveralpositivesectorspecific
measures. The new government has reiterated its aims (1) to remove regional
imbalance in natural gas access and provide clean and green fuel throughout the
country,(2)Toconnectgassourcestomajordemandcentresandensureavailability
of gas to consumers in various sectors, and (3) to develop City Gas Distribution
NetworksforCNGandPNG.
Developmentofnaturalgaspipelineinfrastructure
Governmentaimstodoublethenationalgasgridtoalmost30,000kms.
Tolayabout11,900kmofpipelines;1,175kmpendingawardsduetocourtcases.
2,500kmofpipelinehavebeenidentifiedfordevelopmentthroughPPP.MOPNG
hasidentifiedthreepipelinesectionswithatotallengthofabout2,500kmsfor
developmentthroughPPPmode.
Government pushing for development of the JagdishpurHaldia pipeline
(~2,000km) to revive north Indian stranded fertiliser plants to develop CGD
networksalongthispipeline.
100%domesticgasallocationforCNGandDPNGrequirement
HighershareofcostlyRLNGforCNGhadbeenamajorconcernforplayers.
EarlyCY14,MOPNGallowed100%domesticgassupplyforCNG/DPNGbasedon
theirlastsixmonthsaverageconsumption
Allocatedadditional10%tomeetgrowthanddemandfluctuations.
CGD(netofindustrial/commercial)isvirtuallyonthetopofthegasprioritylist
a major reform that has increased availability and affordability of gas for CNG
andDPNG.
DevelopmentofPNGsectoronaMissionMode
PNGRBsaysitstargetis1.78mnadditionalPNGconnectonsinthenexttwoyears
vs.2.94mncurrently.
CNGMarketingGuidelinestoopenupCNGretailing
MOPNGhasissueddraftguidelinesforgrantingmarketingrightstosetupCNG
stations outside city limits in order to promote CNG as a transportation fuel
alonghighwaysforintercitytraffic.Commentsarebeingsoughtforthis.
Governmentaimstodoublethe
nationalgasgridtoalmost30,000kms
EarlyCY14,MOPNGallowed100%
domesticgassupplyforCNG/DPNG
basedontheirlastsixmonthsaverage
consumption
AnyeligibleandseriousentitycouldsetupCNGoutletssimilartopetrol/diesel
ones (Rs 5bn of oil & gas sector investment criteria). They would not require
geographical approvals. Hence, CNG stations could be set up inhighways, rural
areas,smallertowns,andcities.
Minister Pradhan has recently announced development of green corridors
(highwayCNGnetwork)alongDelhiJaipur/Chandigarh/Agra/Haridwar,Mumbai
Pune,AllahabadKanpurLucknowandSouthernIndia.Thesehighwayoutletscan
beavolumedriverinthelongterm.
Upstreamreformstoraisegasavailability
Revisioninthepriceofdomesticnaturalgas
Intensification of domestic exploration and production activities through New
MarginalFieldPolicy
NewExplorationLicensingPolicy(NELP)newrevenuesharingpolicywithopen
acreage
Openlicenseandgaspricingandmarketingfreedomunderdevelopment
Developmentofshalegaspolicyframework
Researchanddevelopmentofgashydrateresourcesinthecountry
Exploringpossibilityoftransnationalgaspipelines,clearanceforexplorationand
developmentofsomeNELPblocks
Exploration inthe Mining Lease Area with certain conditions and acquisition of
overseasoilandgasassets.
PNGRB: Sector regulator PNGRB has also initiated measures for expansion and
developmentofthegassectorincludingCGD.
MOPNGhasissueddraftguidelinesfor
grantingmarketingrightstosetupCNG
stationsoutsidecitylimits
DetailsofPNGRBbiddingrounds
Area
FirstRound
OfferedinCY09,conductedsuccessfully
Sonepat
Dewas
Kota
Meerut
Mathura
Kakinada
State
Winner
Haryana
MadhyaPradesh
Rajasthan
UttarPradesh
UttarPradesh
AndhraPradesh
GAILGas
GAILGas
GAILRJGasJV
GAILGas
DSM/Saumya
Bhagya.Gas
SecondRound
OfferedinCY09,conductedsuccessfully
Rajahmundry
Shahdol
Yanam
Jhansi
Allahabad
Chandigarh
AndhraPradesh
AndhraPradesh
AndhraPradesh
UttarPradesh
UttarPradesh
UnionTerritory
Unalloted
Unalloted
Unalloted
CentralUPGas
Adani/IOCLJV
Adani/IOCLJV
ThirdRound
OfferedinCY10,wentintodisputes
Area
Jalandhar
Ludhiana
Bhavnagar
Jamnagar
KutchWest
KutchEast
Asansol/Durgapur
State
Punjab
Punjab
Gujarat
Gujarat
Gujarat
Gujarat
WestBengal
Winner
JayMadhok
JayMadhok
GujaratGas
GSPCGas
GSPCGas
JayMadhok
Unalloted
FourthRound
Resultsbeingdeclared
Area
Ernakulam
Rangareddy/M
Nalgonda
Khammam
Bangalore
Pune(Adjoining)
Raigarh
Thane(Extension)
Daman&Diu
Dadra&NH
Shahjahanpur
Guna
Panipat
Amritsar
State
Kerala
AndraPradesh
AndraPradesh
AndraPradesh
Karnataka
Maharashtra
Maharashtra
Maharashtra
UnionTerritory
UnionTerritory
UttarPradesh
MadhyaPradesh
Haryana
Punjab
Winner/Forerunner
Adani/IOCLJV
NA
NA
NA
GAILGas
MaheshInfra
MahanagarGas
GujaratGas
Adani/IOCLJV
GSPCGas
NA
NA
Adani/IOCLJV
GSPL
Source:PNGRB,Mediareports(for6thRound),PhillipCapitalIndiaResearch
Area
FifthRound
Resultsbeingdeclared
EastGodavari
WestGodavari
Krishna
Belgaum
Tumkur
Bidar
Dharwad
AhmadNagar
Latur
Osmanabad
Banaskantha
Dahod
Dhar
Shivpuri
Muzaffarnagar
Aligarh
Bulandshahr
Badaun
Haridwar
UdhamSinghNagar
State
Forerunner
AndhraPradesh
AndhraPradesh
AndhraPradesh
Karnataka
Karnataka
Karnataka
Karnataka
Maharashtra
Maharashtra
Maharashtra
Gujarat
Gujarat
MadhyaPradesh
MadhyaPradesh
UttarPradesh
UttarPradesh
UttarPradesh
UttarPradesh
Uttarakhand
Uttarakhand
HPCL/APGDCL
HPCL/APGDCL
MeghaEngg.
MeghaEngg.
MeghaEngg.
NA
Adani/IOCLJV
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
GAILGas/BPCLJV
Adani/IOCLJV
SixthRound
JustAnnounced
Dahod
Patan
Banaskantha
Amreli
DahejVagra
Ahmadabad
Anand
Panchmahal
Amethi
Auraiya
Baghpat
Etawah
Raebareli
Mainpuri
RamabaiNagar
Nainital
Bhiwani
Yamunanagar
Rewari
Rohtak
Jhabua
Dhar
Rewa
Shahdol
AhmadNagar
Chitradurga
Gadag
Bhatinda
Rupnagar
FatehgarhSahib
NorthGoa
Others
Gujarat
Gujarat
Gujarat
Gujarat
Gujarat
Gujarat
Gujarat
Gujarat
UttarPradesh
UttarPradesh
UttarPradesh
UttarPradesh
UttarPradesh
UttarPradesh
UttarPradesh
Uttarakhand
Haryana
Haryana
Haryana
Haryana
MadhyaPradesh
MadhyaPradesh
MadhyaPradesh
AndhraPradesh
Maharashtra
Karnataka
Karnataka
Punjab
Punjab
Punjab
Goa
UP,MPetc
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
Resumptionofbiddingfornewcities/geographicalareas
PNGRB has resumed licensing activity for awarding of new geographical areas
(GAs)throughcompetitivebidding.
IntherecentRound4,itawardednineGAsoutofthe14itputonoffer.
Round5 with 20 GAs on offer is under progress with eight entities already
forerunners;Round6hasalsobeenannouncedwith34GAsonoffer.
Itisrepackagingmanyolderunallottedbidsinrecentrounds.
OtherCGDregulationoverhaulbyPNGRB
PNGRBreleasedproposedamendments(followingSupremeCourtsorderonthe
IGLvs.PNGRBdispute)forstakeholderviewson:
o CGDnetworkaccesscodebringingclarityonnetwork/compressioncharge
useronwhomregulatedtariffwouldbeapplicableratherthanallcategory
ofcustomers
o RelaxationonownershipofCGDentitiesapprovedforaparticulararea
o Overhaulinbiddingparameters.
Amendment of volume divisor assumption while determining trunk gas pipeline

tariffs
PNGRBhasrevisedvolumedivisorfordeterminationofunitnaturalgaspipeline
tariffbyloweringthecapacityassumptionto75%ofcapacityfrom100%earlier.
Thismeansforthefirstfiveyears,tariffswouldbe75%ofapplicablepercentage
utilisation (i.e. 60/70/80/90/100%) and 75% (of 100%) from the sixth year
onwards.
Incaseofpipelineswhereutilisationlevelsarelower,unittariff(determinedby
usingnormativevolumedivisor)wouldnowbehigher,leadingtotariffrevisions
therebyprovidingapositivetriggerforlowutilisationpipelines.
CourtofLaw:Thecountryscourtshavepromotedgasusagedirectlyorindirectlyasa
responsetoenvironmentalissues.Regulationofmarketingmarginshasbeenamajor
dragontheCGDsectorandclarityisawidelywelcomedstep.
SupremeCourtclearedamajorissuewhilequashingPNGRBsorderintheIGLcase
and upheld the view that retailing of CNGand PNG is free in nature and the board
doesnothavepowertofixtariff.
TheSupremeCourtstatedthat
"OnascanningoftheentireActandapplyingvariousprinciples,wefindthattheAct
doesnotconferanysuchpowerontheBoardandtheexpression"subjectto"usedin
Section22makesitaconditionalone.IthastoyieldtootherprovisionsoftheAct.
ThepowertofixthetariffhasnotbeengiventotheBoard.InviewofthattheBoard
cannotframeaRegulationwhichwillcovertheareapertainingtodeterminationof
network tariff for city or local gas distribution network and compression charge for
CNG. As the entire Regulation centres around the said subject, the said Regulation
deserves to be declared ultra vires, and we do so. Ex consequenti, we find no
substance in this appeal and accordingly the same stands dismissed without any
orderastocosts.
MOPNGaskedPNGRBtodecideonfixingmarketingmargins,butonlyforgassoldto
fertiliserandLPGsectorstherebyremainingsilentonCGD
Delhi High Court ruled that commercial vehicles (which include application based
cabs) cannot ply in Delhi unless converted to the single fuel mode of CNG with a
deadlineofMarch1,2016.
GujaratHighCourthadorderedallnewpublicandprivatevehiclestorunonCNGin
CY12. While the state government opposed this, citing physical and financial
PNGRBhasrevisedvolumedivisorfor
determinationofunitnaturalgas
pipelinetariffbyloweringthecapacity
SupremeCourtclearedamajorissue
whilequashingPNGRBsorderintheIGL
caseandupheldtheviewthatretailing
ofCNGandPNGisfreeinnature
constraints, it led to the state pursuing nondiscriminatory allocation of cheaper

domesticgasforitsCGDcompanies.
This was later ruled in favour by the High Court as well as the Supreme Court.
Accepting this, the central government then allocated 100% domestic gas for CNG
andDPNGrequirementsofaCGDcompany.
NationalGreenTribunal(NGT)hasindirectlyupheldthecausefornaturalgasasan
environment friendly fuel in Delhi. The NGT ordered a ban on 10/15 years old
diesel/petrolvehiclesenteringDelhi.TheSupremeCourthasendorsedNGTsorder.
Asperinitialmediasources,theNGTorderwouldimpact~120,000privatevehicles,
35,000commercialvehicles(CV),250,000interstatetransportbusesand5070,000
trucks, which enter Delhi from outside the state. The government contested this,
saying many of these old vehicles are used for essential services like
dumping/garbageandthattheownersmaynotbefinanciallysoundtocomplywith
theorder.NGThaspushedforthedieselvehiclebaninDelhiandrecentlyordereda
pollutiontax(Rs1,300onheavyCVsandRs700onlightCVs)forsuchvehicles,which
wasagainupheldbytheSupremeCourt(thoughimplementationwouldfollowafter
some more discussions). As per revised numbers by the Municipal Corporation of
Delhi,66,069CVsenterDelhiofwhich14,000aretrucks.Around11,000oftheseare
Delhidestinedandhavetopaythepollutiontaxwhiletherestwouldbedivertedto
peripheralhighways.
TheNationalGreenTribunalhasalso
indirectlyupheldthecausefornatural
gasasanenvironmentfriendlyfuelin
Delhi
CompaniesSection
IndraprasthaGasLtd(IGLIN)
Strongfranchisewithsolidfinancials
2December2015
INDIA|OIL&GAS|ReInitiatingCoverage
Indraprastha Gas (IGL) has an 82% exposure to the lucrative CNG/DPNG segment
where cheap domestic gas is fully available.The sector has seen active government
thrustthroughpolicydrivers.
With CNG Marketing Guidelines close to implementation, highway outlets would
emergeasanewgrowthopportunityforastrongfranchiselikeIGL.
We expect core Delhi area volume growth to recover as appbased taxis convert to
CNGwhileNGTsdieselvehiclebancouldaddtotheCVuniverseinFY17.
IGLs cheap acquisitions in central UP and Pune yield robust volume growth and
strongmargins.WeestimateRs83/shareaccruingtoIGL.
82%exposuretoCNG/DPNGseeingmajorpolicythrust
IGLhasan82%exposuretotheCNGandDPNGsegmentswhichareatthecentreofthe
governmentsfocusonthegasdistributionsector.Toboostavailability/affordability,100%
domestic gas is provided to the CNG/DPNG requirements of a CGD entity. CNG Marketing
Guidelines would be implemented these would allow an eligible entity to set up CNG
outletsinhighways,towns,andruralareas.CNGeconomicsremainfavourable(~50%/20%
cheaper than petrol/diesel), partially due to a skewed tax structure, which is likely to
continue. DPNG would also continue growing due to its hasslefree nature and the
governmentsaggressivegrowthtarget.
PlentyofopportunitiestotapasCGDsectordevelopsacrossthecountry
IGL has a strong franchise and is well placed to tap sector opportunities. This includes
highwayCNGoutletsinroadnetworkscirclingDelhi(Jaipur/Chandigarh/Haridwar/Agra).We
estimate a potential demand of 0.6mmscmd from the DelhiJaipur highway alone, which
would require ~70 outlets delta from these would be gradual (56years). PNGRB is
aggressively holding CGD rounds this, coupled with cheap domesticgas availability and
IGLscorecapexfadingshouldcreateneworganicopportunities.ApprovalforGurgaonentry
(underservicedbyexistingentity)canadd0.8mmscmd.
Delhigrowthcouldrecoverwithappbasedtaxis,NGTorder,DPNGexpansion
We expect IGLs volume growth to recover to 56% by FY18 from 1% in FY15 due to new
CNGconversionsfromappbasedcabsandNGTsvehiclebancoupledwithhighwayoutlets.
Companies such as Ola and Uber have a fleet of ~40,000 and assuming conversion of
~15,000taxiesbyFY16endgivesavolumedeltaof~0.1mmscmdor2%ofvolumesforIGL.
NGTbanondieselvehiclesisalsoestimatedtoimpact~50,000CVsofwhich20%arelikely
to be affected initially, implying ~0.3mmscmd opportunity, or 6%. Delhi government is
planningtolaunch2,000newbusesshortly,whichcouldadd12%tosales.DPNGexpansion
wouldremainaggressivewithadditionsof150,000newhouseholdyoy.
CheapacquisitionsinPuneandcentralUPseeingrapidearningstrajectory
InCY1315,IGLacquired50%stakeeachinCentralUPGas(CUGL)andMaharashtraNatural
Gas (MNGL) at cheap valuations of ~7x trailing PE. These entities are in a high earnings
trajectory with 7080% exposure to the CNG segment. In FY15, the entities together
recordedcloseto20%volumegrowth.WeexpectavolumeCAGRof12%inFY1520,with
IGLssharerisingto0.5mmscmdfromfrom0.3mmscmd.TheseentitieshaveanEBITDA/scm
of Rs 67 vs. IGLs Rs 56. CUGL is debt free and MNGLs net debt to equity is ~0.4x. We
expecttheircombinedDCFbasedpersharevalueatRs83forIGL.
ReinitiatecoveragewithaBuyandpricetargetpriceofRs575
WereinitiatecoverageonIGLwithaBuyratingandanSOTPbasedtargetpriceofRs575
(Rs491fromcoreIGLandRs83fromCUGL/MNGL,bothusingDCF).Ourtargetimpliesan
FY18 PE of 14x. With lowerthanexpected CNG/DPNG cut after gas price reduction, we
expectearningstorecoverinH2FY16.ExpectedreductioninQatarLNGpricesandtakeor
paywaiverwillremoveakeystockoverhang.
BUY
CMPRS483
TARGETRS575(+19%)
COMPANYDATA
O/SSHARES(MN):
MARKETCAP(RSBN):
MARKETCAP(USDBN):
52WKHI/LO(RS):
LIQUIDITY3M(USDMN):
PARVALUE(RS):
140
68
1
523/376
2.3
10
SHAREHOLDINGPATTERN,%
FII/NRI:
FI/MF:
NONPRO:
PUBLIC:
GOVT:
Jun15
45.0
23.9
17.8
1.4
12.4
Mar15
45.0
23.6
16.9
1.6
13.3
Dec14
45.0
21.1
17.8
1.7
14.9
PRICEPERFORMANCE,%
1MTH
1.2
0.7
ABS
RELTOBSE
3MTH
1.1
1.6
1YR
10.2
19.1
PRICEVS.SENSEX
200
150
100
50
Apr/13
Apr/14
IGL
Apr/15
BSESensex
Source:PhillipCapitalIndiaResearch
KEYFINANCIALS
Rsmn
NetSales
EBIDTA
NetProfit
EPS,Rs
PER,x
EV/EBIDTA,x
P/BV,x
ROE,%
Debt/Equity(%)
FY16E
37,349
7,871
4,321
30.9
15.6
8.1
2.8
17.8
5.6
FY17E
36,036
8,434
4,758
34.0
14.2
7.2
2.4
17.1
4.5
Source:PhillipCapitalIndiaResearchEst.
FY18E
37,714
8,818
5,094
36.4
13.2
6.6
2.1
16.2
3.7
INDRAPRASTHAGASLTD REINITIATINGCOVERGE
InvestmentThesis
With aggressive expansion skills, sound industry experience, and disciplined capital
allocation,IGLisbestplacedtobenefitfrompolicytriggersinCNG/DPNGwhilebeing
largely insulated from the risks of an IPNG slowdown. Expected reduction in Qatar
LNGpricesandwaiverofthetakeorpaypenaltybyRasGaswillremoveakeystock
overhangandimproveIGLsIPNGbusinessoutlook.
82%exposuretoCNG/DPNGthatisseeingmajorpolicysupport
IGLhas82%exposuretotheCNGandDPNGsegments,whichareatthecentreofthe
governments thrust within gas distribution sector. MOPNG has repeatedly stated
thattheNDAgovernmentisveryinterestedinpromotingtheCGDsector,particularly
CNG and DPNG, due to the clean and economic nature of the fuel and Indias
relativelybetterprospectsinnaturalgasresourcesoverthelongterm.
IGLssalesvolumemixis76%CNGand6%DPNG
IPNG,9%
TPTTrading,7%
CPNG,2%
DPNG,6%
CNG,76%
Taxation in CNG is much lower than petrol and diesel union excise of 14.42%
translating into just Rs 4/kg vs. Rs 19.1/lt in petrol and Rs 10.6/lt in diesel we
believethiswillcontinue.Additionally,inDelhithereisnostateVATonCNGagainst
25% in petrol and 16.6% in diesel. We believe this is a strong signal from the
governmentaboutitsintentiontopromoteCNGasacleanfuel.
CNGstaxincidenceisextremelylowcomparedtopetrolanddiesel
__________CNG__________
__________Petrol__________
__________Diesel__________
Deliv.GasCost(US$/mmbtu)
5.9 C&FPrice(US$/bbl)
59.3 C&FPrice(US$/bbl)
59.5
InRs/scm
13.7 InRs/ltr
24.8 InRs/ltr
24.9
InR./kg
18.2 GrossMargin
2.5 GrossMargin
2.2
GrossMargin+DealerComm. 14.3 DealerCommission
2.3 DealerCommission
1.4
NetPrice
32.5 NetPrice
29.5 NetPrice
28.5
ExciseDutyat14.4%
4.7 SpecificExciseDuty
19.1 SpecificExciseDuty
10.7
PreVATPrice
37.2 PreVATPrice
48.6 PreVATPrice
39.1
VATat0%
0.0 VATat25%
12.1 VATat16.6%
6.8
DelhiRSP
37.2 DelhiRSP
60.7 DelhiRSP
45.9
There is full domestic gas allocationfor CNG/DPNG requirements of aCGD entity

this was implemented in early CY14 by the UPA government and continues. Under
this, CNG/DPNG sellers are allotted 100% domestic gas based on their trailing six
month average sales +10% for future growth and demand fluctuations. The
government has virtually put CGD (net of industrial/commercial) on the top of the
gasprioritylist.Earlier,highershareofpricierRLNGforCNGwasamajorconcern.
Supply of cheap domestic gas for CNG/DPNG will continue (~10mmscmd

consumption currently). Noncore/lesspriority sectors consume 45mmscmd, which
would be diverted to CNG DPNG if needed. Domestic gas production is likely to
increase from ONGCs assets (Daman, Vashishta, and Bassein EOR) and from CBM
whereDomesticNaturalGasPricingGuidelinesarelikelytohold.
MOPNG has issued draft guidelines for granting of marketing rights to set up CNG
stations outside city limits in order to promote CNG as a transportation fuel along
highwaysforintercitytrafficalongwithsmallertownsandruralareas.Commentsof
key stakeholders are being received this is likely to be implemented. Minister
Pradhan has recently announced development of green corridors (highway CNG
network) along DelhiJaipur/Chandigarh/Agra/Haridwar which circle IGL operated
NCR region thereby throwing up a medium to longterm opportunity for the
company.
CurrentCNGeconomicsversuspetrolanddiesel
Delhi
Price(Rs/ltrkg)
Mileage(km/ltrkg)
Cost(Rs/km)
CNGcheaperby(%)
Dailyrunning(km)
Dailycost(Rs)
Annualcost(Rs)
Savingsvs.petrol(Rs)
CNG/dieselkitcost(Rs)
Paybackperiod(months)
Petrol
60.7
15.0
4.0
49%
40
162
58,272
Diesel
45.9
18.0
2.6
19%
40
102
36,744
21,528
1,00,000
56
CNG
37.2
18.0
2.1
40
83
29,760
28,512
30,000
13
CNGeconomicsarecompetitive;DPNG11%expensivetosubsidisedLPG
CNG economics are more competitive 49%/19% cheaper than petrol and diesel
with20%moremileageefficiencythanpetrol.PaybackperiodofaCNGcaratcurrent
rateisoneyearvs.fivefordiesel(assumingadailytravelof40km,notincorporating
interestexpense).
We expect domestic gas prices to remain weak at US$ 4/mmbtu. Our oil price
assumption of US$ 60/bbl in FY17 implies that the economics become more
favourableat55%and~30%respectively
DPNGeconomicsareslightlydifferentitis11%moreexpensivethansubsidisedLPG
and 15% cheaper than nonsubsidised LPG. However, DPNG growth would also
continue due to its hasslefree nature and the governments aggressive growth
target.NonsubsidisedLPGhasadditionaltaxesatthecentralandstatelevel.
DPNGversusLPGeconomics
Delhi(IOCL)
LPGprice/cyl(Rs)
LPGprice/kg(14.2kgcyl)
Calorificvalue(Kcal/kg)
LPGprice/mncalories(Rs)
Delhi(IGL)
Dom.PNGprice(Rs/scm)
Calorificvalue(Kcal/scm)
PNGprice/mncalories(Rs)
Pricedifference(%)
Subsidised
417.8
29.4
11,900
24.7
Nonsubsidised
545.0
38.4
11,900
32.3
24.7
9,000
27.4
11%
24.7
9,000
27.4
15%
PlentyofopportunitiesasCGDdevelopsacrossthecountry
IGLhasastrongfranchisewithadequateexpertiseandexperience.WebelieveIGL's
brandisstronginnorthIndia(morethanGAILGas,RajasthanStateGasorAdaniwho
are major players), so it is well placed to tap incremental opportunities in CGD.The
CNGMarketingGuidelines(allowinghighwayCNGoutlets)isanotableopportunityin
major Delhicircling road networks like DelhiJaipur/Chandigarh/Haridwar/Agra.
While IGL does not expect this to boost nearterm demand, with CNG availability,
statetransportvehiclesandprivateandpublicbuseswouldseeconversions.Inthe
nearterm,demandwouldcomefromalreadyconvertedCNGvehicles(whichwould
havenotventuredoutstationorrunonpetroliftheydid).
GrosspotentialdemandfromDelhiJaipurHighway
DelhiJaipur
Highway(NH8)
Cars&Taxis
LCV
Bus
Total
CNGrequiredinmmscmd
Vehicles Mileage Distance CNG/vehicle

mn km/kg
km
kg
5.9
1.1
0.6
7.5
AnnualCNG
mn.kg
AnnualCNG
mmscm
119
50
62
232
0.6
18.0
8.0
3.5
275
275
275
15.3
34.4
78.6
90.1
37.8
47.1
We estimate a total potential demand of ~0.6mmscmd (15% of IGLs current

volumes)fromtheDelhiJaipurhighwayalone,whichwouldrequire~70outlets.The
deltafromthiswouldbegradual(56yearsassuming1214outletsperyear).The10%
additionalgasallocationwillinitiallytakecareofdemandfromhighwaysforIGL.For
other players, this allocation could be more challenging, as they will have to show
sales first and then get allocation they might have to run on pricier LNG initially.
APMallocationalsohasproceduralandadministrativebottlenecks.
PNGRBisaggressivelyholdingCGDbiddingrounds.IGLhasnotparticipatedinanyof
these auctions until now, citing unattractiveness; yet, on cheap domesticgas
availability and IGLs own core capex fading, new opportunities could emerge.
Againstlessthan10GAsbeingofferedinthefirstthreerounds,thefourthroundsaw
14 GAs, the fifth had 20, and the sixth, over 30. These include cities in north India
(such as Bhatinda, Rohtak, and Nainital).Gurgaon, which was originally allocated to
IGL,wasallottedtoHaryanaGashowever,thelatterhasnotbeenabletoexpand
properlywithonlyfiveCNGoutletsuntildateand~4,400DPNG,51CPNG,and9IPNG
customers.IGLhaspitchedreentryintoGurgaonifsuccessful,thiswillopenanew
marketforthecompany.Guragonhasatotalpotentialof0.8mmscmd,whichwould
needabout45yearstofulfil.Wehavenotaccountedthisinourestimates.
WebelievetheseopportunitiesboostthelongertermoutlookforIGL,evenaround
itscoreoperatingareaofNCR.Whiletheirimpactwouldbegradual,itcanstillmake
animpactof23%annuallyunderreasonableconditions.
Delhigrowthcouldrecover
Recently, the Delhi High Court ordered applicationbased radiotaxi services (Ola,
Uber)toconverttoCNGthiswillbenefitIGL.Theseserviceshaveafleetofalmost
40,000taxis.TheHChasgivenadeadlineofMarch2016forimplementation.While
hearingswouldcontinue,~15,000taxisarelikelytoconvertbythegivendeadline.At
7.5kg/day usage, delta from 40,000 cars is ~0.2mmscmd or 6% of IGLs current
volumes of 4.08mmscmd; impact of 15,000 vehicles would a volume delta of
~0.1mmscmdor2%.
ImpactofDelhiHighCourtsrulingonappbasedcabsCNGconversion
No.OfAppBasedTaxisinDelhi
EstimatedDailyCNGConsumption(kg)
TotalPotentialDemand(mmscmd)
IGL'sCurrentSalesVolumes(mmscmd)
ImpactOverLongerTerm
NearTermTaxiConversion
VolumeDeltaForIGL(mmscmd)
ImpactOnCurrentSales
40,000
7.5
0.2
4.1
6%
15,000
0.1
2%
Source:IndustrySources,Company,PhillipCapitalIndiaResearch
TheNGTsbanonolddieselandpetrolvehicles(asperinitialmediasources)would
impact ~120,000 private vehicles, 35,000 commercial vehicles (CV), 250,000 inter
statetransportbuses,and50,00070,000trucks,whichenterDelhifromoutsidethe
state.Thisimpliesagrosstotalpotentialofover2mmscmdofgasconsumption,i.e.,
50%ofIGLscurrentsales.However,figureshavebeensincerevisedduetodifficulty
intrackingvehiclemovement.
ImpactofNGTorderonallvehiclesandCNGpotential
CNGsales
potential
Privatevehicles
Commercialvehicles
Trucks
Total
Running
km/day
40
50
50
Mileage
km/kg
18.0
5.0
3.0
CNGreqd
daily(kg)
2
10
17
No.of
vehicles
1,20,000
34,700
62,500
217,200
CNGreqd
daily(mnkg)
0.3
0.3
1.0
1.7
Source:MediaReports,PhillipCapitalIndiaResearch
As per management and industry sources, the order is likely to impact ~50,000
commercial vehicles, as there are not enough peripheral roadways to save on
pollutiontolltaxofRs7001300pervehicle,pertrip.Whiletheactualconversionis
extremelydifficulttoascertain,basedonourdiscussionsandunderstanding,~20%of
these 50,000 could convert initially. On an estimated 35kg/day CNG usage for CVs,
weestimatevolumedeltafrom50,000vehiclesatasignificant32%ofIGLscurrent
sales;at20%,itwillstillimply6%volumeimpactor0.3mmscmdinthenearterm.
ImpactofDelhiNGTrulingonolderpollutingvehicles
No.OfVehiclesImpacted
EstimatedDailyCNGConsumption(kg)
TotalPotentialDemand(mmscmd)
IGL'sCurrentSalesVolumes(mmscmd)
ImpactOverLongerTerm
NearTermImpacton20%
VolumeDeltaForIGL(mmscmd)
ImpactOnCurrentSales
50,000
35
1.3
4.1
32%
10,000
0.3
6%
Source:IndustrySources,Company,PhillipCapitalIndiaResearch
TheDelhistategovernmentisalsoplanningtolaunch2,000newbusesshortly,which
can add 12% to sales (assuming 1,0002,000 net additions). While more buses are
planned, their launch has been mired in difficulties such as availability of parking
space.
Annual
CNG(mnkg)
97
127
380
604
AnnualCNG
mmscm
128
167
502
798
CNGvol.
mmscmd
0.4
0.5
1.4
2.2
DPNGs expansion would continue to be robust IGL has set a target of ~300,000
additional connections in FY16, which though looks aggressive as it has had only
~60,000 connections up to August 2015. We expect 150,000 net additions yoy in
FY16vs.90,000100,000inFY15.
CNG volume growth has remained surprisingly unaffected even after the rapid
development of Delhi Metro in the last decade; even though the metro network
continuestoexpand,wedonotseeitasasizeablestructuralthreattoDelhisCNG
consumption.IGLhastiedupwithanIraniancompanytolaunchCNGtwowheelersin
NCR. Technology testing is planned towards the end of FY16 and Honda has been
ropedinforintroducingtheCNGActiva.Whilethisisataverypreliminarystage,it
couldturnouttobeabigopportunity.Therearemorethan5.3mnregisteredtwo
wheelersincoreDelhiareaalone.
ExpectIGLscoreareagrowthtocomebackto56%yoy
6.0
CNGSales
PNGSales
5.0
mmscmd
4.0
3.0
3.8
3.9
4.1
TotalVolumes
4.3
4.6
4.9
1.2
3.7
3.8
1.0
0.9
0.9
0.9
0.9
3.0
3.2
3.3
3.8
2.8
2.9
3.5
2.8
FY13
FY14
FY15
FY16E
FY17E
FY18E
FY19E
FY20E
1.0
2.0
1.1
1.0
0.0
WeexpectIGLsyoyvolumegrowthtorecoverto34%inFY16/17from1%inFY15
andfurtherto56%inthenext45years.WeexpecttotalvolumestoseeaCAGRof
4% in FY1518 to ~4.3mmscmd, which would accelerate to ~5% in FY1820 and
stabiliseat~5%.Weassumeaconservativemarkupof1%onabasevolumegrowth
of ~3% in FY17 due to appbased cabs; 2% mark up in FY18 due to NGT order and
residual appbased cabs. From FY19, we expect highway CNG demand, new areas,
andIPNGtoaddtothisdelta;hence,wesee6%yoygrowth.
CheapacquisitionsinPune/centralUPrapidearningstrajectory
IGL has focused on acquisitions (vs. organic CGD expansion). It has refrained from
participating in any of the five PNGRB bidding rounds so far, thereby maintaining
capitaldiscipline.Thisstrategyhasprovedbeneficial,asgreenfieldCGDdevelopment
isalonggestationbusinessandnottoomanyplayershavemadeasignificantdentin
thisspace,barringIGL,GujaratGasCo.,GSPCGasandMahanagarGas.
In CY1315 it acquired 50% stake each in Central UP Gas (CUGL) and Maharashtra
NaturalGasLtd(MNGL)atextremelycheapvaluationsoflessthan7xtrailingPEfrom
privateequityseedinvestors.BoththecompanieshaveGAILandBPCLasotherstake
holders(25%stakeeach)whoarealsoIGLspromoters.
IGL'sacquisitiondetails
CentralUPGasLtd
DateAnnounced
DateCompleted
TotalSharesO/S(mn)
StakeAcquired
SharesBought(mn)
AcquisitionPrice(Rs)
AcquisitionCost(Rsmn)
TrailingEPS(Rs)
PE(x)
0613
CY14
60
50%
30
23
690
3.5
6.5
MaharashtraNaturalGasLtd
DateAnnounced
DateCompleted
TotalSharesO/S(mn)
StakeAcquired
SharesBought(mn)
AcquisitionPrice(Rs)
AcquisitionCost(Rsmn)
TrailingEPS(Rs)
PE(x)
0814
0415
100
50%
50
38
1900
5.7
6.7
BothCUGLandMNGLareinahighearningsandvolumegrowthtrajectorywith~80%
exposure to the lucrative CNG/DPNG segments. In FY15, the entities together
recordedcloseto20%yoygrowthinvolumeswhileinH1FY16theyrecorded~15%
growth. We expect a volume CAGR of 12% in FY1520 from these two entities and
IGLsshareofvolumestoriseto0.51mmscmdfrom0.29mmscmd.Theseentitieshave
anEBITDA/scmofRs67againstIGLsRs56thisisbecause,fromalowCNG/DPNG
base,conversionisfastandlesspricesensitive.Againstperceptions,DPNGisactually
arobustmarginbusiness.
SnapshotofCUGLandMNGL
Rsmn
CUGL
Volumes(mmscmd)
Growth
EBITDA/scm(Rs)
EBITDA
PAT
Growth
MNGL
Volumes(mmscmd)
Growth
EBITDA/scm(Rs)
EBITDA
PAT
Growth
IGL'sPATContribution
Growth
EPSContribution(Rs)
FY13
FY14
FY15
FY16E
FY17E
FY18E
FY19E
FY20E
0.16
0.17
10%
7.0
447
251
20%
0.17
2%
7.0
438
275
10%
0.19
10%
8.0
546
330
20%
0.21
10%
7.5
562
340
3%
0.22
7%
7.4
593
361
6%
0.24
7%
7.3
626
383
6%
0.25
7%
7.2
664
407
7%
0.31
55%
8.5
950
541
41%
396
33%
2.8
0.40
31%
6.4
944
506
7%
390
1%
2.8
0.46
15%
7.4
1248
739
46%
535
37%
3.8
0.53
15%
7.4
1445
856
16%
598
12%
4.3
0.61
15%
7.4
1649
990
16%
676
13%
4.8
0.69
12%
7.3
1829
1114
12%
748
11%
5.3
0.77
12%
7.2
2029
1253
13%
830
11%
5.9
6.6
379
210
0.20
8.1
584
385
297
2.1
CUGLandMNGLsearningsgrowthrunratebasedonH1sRs500mnPAT(IGLsshare
atRs250mnorRs1.8EPScontribution)impliesafullyearPATofoverRs1bn,+35%yoy.
BalancesheetalsoremainsstrongwithCUGLbeingdebtfreeandMNGLsnetdebt
toequityratioat~0.4x.GrosscapexofthetwoentitiesinFY15wasRs600700mn.
Operationalandfinancialanalysis
WeestimateIGLsfiveyearvolumesCAGRat5%vs.1%yoygrowthinFY15basedon
triggers such as appbased cab conversion to CNG, potential CV conversion due to
NGTs order, highway CNG outlets, robust addition of DPNG connections, and
recoveryinIPNGvolumesasLNGpricesrationaliseincomparisontooilandfurnace
oilprices.WeestimateIGLscleanEBITDA/scmtoremainstableatRs5.45.5onlow
domestic gas prices further boosted by expected lowering of Qatar LNG prices by
40%+,whichwouldhelpimproveCPNGandIPNGvolumesandmargins.IGLhasbeen
deferring ~30% of RasGas volumes during FY16, for which take or pay liability for
M9FY16 would have been ~Rs800mn. With RasGas likely to waive this off, a key
overhangonearningsandbalancesheethassubsided.
Q2 margins were weak.However, lesserthanrequired CNG/PNG price cutsafter the

naturalgaspricereductioninOctober2015islikelytonormalisemarginsforthefull
year.Basedonprimaryassumptions,weexpectIGLsadjustedstandalonePATCAGR
of5%inFY1518totouchRs5.1bn(Rs36.4/sh).AverageRoEwoulddeclineto17%by
FY18from23%inFY15,butCUGL/MNGLconsolidationshouldimproveconsolidated
PATCAGRtoalmost10%.
IGLsstandaloneEBITDAandPAT
IGLsstandaloneROEandROCE
12
EBITDA
30%
Adj.PAT
10
Rsbn
7.9
7.8
7.6
8.4
7.9
3.5
25%
ROE
24%
23% 23%
22%
4.3
4.8
5.1
5.5
5.9
3.6
22%
19%
20%
6
4.4
9.9
9.3
8.8
26%26%
21%
18%
19%
19%
17%
17%
ROCE
18%
16%
15%
10%
5%
0%
0
FY13
FY14
FY15
FY16E FY17E FY18E FY19E FY20E
FY13
FY14
FY15
OverFY1518,weseerevenueCAGRofjust1%toRs37.7bn,asaveragerealisations
arelikelytofallinFY17duetoafurthercutindomesticgasprices(withnosignificant
rebound likely).We see flat reported EBITDA/scm at Rs5.6 in FY1518. We expect
some weakness in FY16 due to Q2, when IGL did not take any price hikes despite
sharprupeedepreciation.StandaloneEBITDACAGRshouldbe4%totouchRs8.8bn,
implying23%EBITDAmarginsinFY18.
WeestimatecapextoremainfairlyconstantatanannualrunrateofRs2.32.5bn
overthenextthreeyears.
IGLiscurrentlynetdebtfreeandFCFgenerationwouldimproveFY17onwards.
Weestimatedepreciationtobeinlinewithcapexwhileinterestshoulddecline
withafallingrossdebt.Weassumeataxrateof33%.
IGLsstandaloneleverage
IGLsstandalonecapex
NetDebt(Rs.bn)
3.7
Capex(Rs.bn)
0.4
2.6
3.5
0.5
0.3
0
5
Rs.bn
3.7
0.2
6.5
10
0.2
9.6
0.1
13.1
15
20
FY14
3.0
16.9
2.5
2.5
0.3
1.3
FY13
4.0
Debt:Equity(x)RHS
2.5
Rs.bn
2.1
2.4
2.3
2.1
2.0
2.0
1.5
1.0
0.1
0.5
0.0
0.0
FY13
FY14
FY15
Summaryofearningsmodel
Rsmn
StandaloneVolumes(mmscmd)
GrossMargin(Rs/scm)
Opex(Rs/scm)
EBITDA/scm(Rs)
CleanEBITDA
OtherOperatingIncome
ReportedEBITDA
StandaloneGrossBlock
Depreciation
DepreciationRate
Debt
Interest
InterestRate
OtherIncome
StandalonePBT
TaxRate
Tax
StadalonePAT
StandaloneEPS(Rs)
CUGL+MNGLEPSContri(Rs)
LessCU/MNGLDiv.Inc.(Rs)
ConsolidatedEPS(Rs)
FY13 FY14 FY15 FY16E FY17E FY18E FY19E FY20E

3.7
3.8
3.8
4.0
4.1
4.3
4.6
4.9
8.7
9.2
9.5
9.3
9.5
9.5
9.5
9.5
3.1
3.6
3.9
3.9
4.0
4.0
4.1
4.1
5.6
5.6
5.6
5.4
5.5
5.5
5.4
5.4
7,558 7,776 7,820 7,750 8,300 8,671 9,158 9,704
23
48
111
122
134
147
162
178
7,582 7,824 7,930 7,871 8,434 8,818 9,320 9,882
27,186 29,733 31,761 34,312 36,762 39,111 41,259 43,305
1,867 2,195 1,487 1,586 1,706 1,821 1,929 2,030
7%
7%
5%
5%
5%
5%
5%
5%
4,585 3,525 1,453 1,353 1,253 1,153 1,053
953
562
441
298
168
143
120
110
100
12%
13%
21%
12%
11%
10%
10%
11%
129
211
345
331
517
727
955 1,000
5,282 5,398 6,490 6,449 7,102 7,603 8,236 8,752
33%
33%
33%
33%
33%
33%
33%
33%
1,741 1,795 2,113 2,128 2,344 2,509 2,718 2,888
3,541 3,603 4,377 4,321 4,758 5,094 5,518 5,864
25.3
25.7
31.3
30.9
34.0
36.4
39.4
41.9
3.8
4.3
4.8
5.3
5.9
0.6
0.7
0.7
0.8
0.9
25.3
25.7
31.3
34.1
37.6
40.5
43.9
46.9
Valuation
WevalueIGLonanSOTPbasis,incorporatingCUGLandMNGL(valuingallthreeusing
DCFmethod)toarriveatatargetpriceofRs575.
Weassumeariskfreerateof8.5%,premiumof5.5%,and0.9xbeta(duetothe
stablenatureofbusiness)forall.
Ourcostofdebtis10%andbasedona30:70targetdebtequityratio,wearrive
ataWACCof11.9%.
We assume a terminal growth rate of 1% for IGL, 1% for CUGL, and 2.5% for
MNGL(Punebeingahighpotentialarea).Basedonthis,wevaluecoreIGL(per
share)atRs491,CUGLatRs16,andMNGLatRs67.
IGLsDCFassumptions
DCFAssumptions
RiskFreeRate
RiskPremium
Beta
CostOfEquity
CostOfDebt
PostTaxCostOfDebt
AverageDebt:EquityRatio
WACC
8.5%
5.5%
0.9
13.5%
10.0%
6.7%
30%
11.9%
TerminalGrowthRate
IGL
CUGL
MNGL
1.0%
1.0%
2.5%
IGLsSOTPvaluation
FY18E(Rsmn)DCFBased
NPVOfFCF
TerminalValue
PVOfTV
TotalValue
Less:NetDebt(Y/E)
EquityValue
No.OfSharesO/S(mn)
TargetPrice(Rs)
CoreIGL
35,138
83,592
27,174
62,313
6,493
68,806
140
491
CUGL50%
1,066
2,375
772
1,839
442
2,280
140
16
MNGL50%
4,366
14,973
4,868
9,234
122
9,356
140
67
Consol.
80,442
140
575
IGLs standalone numbers may not seem stellar on growth metrics, but due to the
strength of its franchise, healthy balance sheet, stable cash flows, and capital
availabilityforopportunitiesinthespace,IGLremainsaportfoliostockwithrelatively
littledownsiderisks.Thisisespeciallytruewithregulatoryclarityemerging(norisks
on price and margin control following Supreme Courts order on the PNGRB case,
favourabledutystructure,andMOPNGsmarketingregulationsveryclearlyspecifying
only fertiliser and LPG). Hence, we use DCF to test IGLs strength. Our target price
implies14xconsolidatedPEmultipleonFY18earnings,whichisreasonablyattractive.
Basedona19%upsidetoCMP,werecommendaBuyratingonthestock.
IGL'sPEbasedvaluation
Rs/sh
IGL'sCoreEPS
Less:CU/MNGLDiv.Inc.
IGLAdjustedEPS
CUGLEPSContribution
MNGLEPSContribution
Consol.EPS
TargetMultiple(x)
DCFTargetPrice
FY15
31.3
0.4
30.8
1.0
1.8
33.6
FY16E
30.9
0.6
30.3
1.2
2.6
34.1
FY17E
34.0
0.7
33.3
1.2
3.1
37.6
FY18E
36.4
0.7
35.7
1.3
3.5
40.5
14.2
575
Keyrisktoourcall
Slowdownandfallinvolumesduetoexpansionissues,unfavourableeconomics
Adverse impact on marketing margins due to unfavourable demandsupply
dynamics,gasversusalternatefuelpricing
Subparperformanceofrecentlyacquiredentities
Reformrollbackandregulatoryrisks
Operationalrisks
CompanyBackground
IndraprasthaGasLtd(IGL)wasestablishedinCY98/99totakeoverGAILsDelhi
CGDproject.
Promoted by GAIL and BPCL each hold 22.5% stake. The Delhi government
owns 5%. With direct and indirect government holding at not more than 50%,
IGLisnotagovernmententityofficially.
Areas of operations include core Delhi and adjoining satellite cities of Noida,
GreaterNoida,andGhaziabad.GurgaonandFaridabadwerealsoslatedtogoto
IGL though first move by rival players halted IGLs expansion plans. IGL is
allocatedAPMgasonbehalfoftheseentities,whichthecompanysellsasthird
partytradingvolumes(6%ofsales).
SourcesnaturalgasfromdomesticproducersandRLNGsuppliersandsellsitto
finalcustomersintheformofCNGandPNG.
Asaninfrastructure(network,compressionfacility)provider,IGLsvalueaddition
includes network tariff and compression charges, which are regulated by
PNGRB.On the trading side, it charges additional marketing margin, which is
completelyfreeanddependentonretailpricingandrawmaterialcost.
PricingisdependentoncompetitivepositionofCNGvs.liquidfuels.IGLsCPNG
and IPNG gas sourcing profile consists of ~0.44mmscmd of RLNG from Qatar
RasGas(currentlydrawing~0.32mmscmdduetodeferment)andremainingfrom
spot.
IGL has 580,000 DPNG customers and 2,371 CPNG/IPNG customers. IPNG
customers are mostly located outside core Delhi area. CNG is retailed through
326 stations (~280 in core Delhi) catering to 19,600 buses, 230,000 three
wheelers/LGVs, 13,400 minibuses (RTVs) and 570,000 cars/taxis (private
vehicles). IGLs network includes 686kms of steel and 9,020kms of medium
densitypolyethylene(MDPE)pipelines.
IGLstotalrevenueinFY15wasRs36.8bnwhilereportedPATstoodatRs4.4bn.
ThecompanyhadtotalassetsofRs30.7bnasonMarch2015endwhilecurrent
marketcapstandsatRs67.6bn.DividendyieldinFY15was1%.
CNG is manufactured by compressing gas using high pressure which is filled in

vehiclesasanautofuelthroughCNGoutlets.PNGissoldtothreeprimarycustomer
groupsnamelydomestic(DPNG)whichishouseholds,commercial(CPNG)comprising
of hotels, restaurants, hospitals, and religious places, and industrial (IPNG)
comprising small and medium industries (less than 50,000scmd consumption). Gas
forCNGandDPNGissuppliedfromdomesticsourcesasperthecentralgovernment
ordertotaling~3.7mmscmd(APM76%,PMT24%)whileIPNGandCPNGisserviced
usingRLNG.With80%+volumeshareonCNG/DPNG,IGLsexposuretoLNGislower.
Management
IGL is currently headed by Mr Narendra Kumar, MD, who has been deputed from
GAIL.MrVNagarajanisDirectorCommercialandRajeshAgrawalisVPFinance.MrM
RavindranfromGAIListheChairmanoftheboard.Nomineedirectorsincludefrom
promoter group and Delhi Govt. Five independent directors are there. CUGL is
headedbyMrV.S.Baid,MD;MNGLbyMrA.M.Tambekar,MD.
Financials
IncomeStatement
Y/EMar,Rsmn
Netsales
Growth,%
Otherincome
Totalincome
Rawmaterialexpenses
Employeeexpenses
OtherOperatingexpenses
EBITDA(Core)
Growth,%
Margin,%
Depreciation
EBIT
Growth,%
Margin,%
Interestpaid
OtherNonOperatingIncome
NonrecurringItems
Pretaxprofit
Taxprovided
Profitaftertax
Others(Minorities,Associates)
NetProfit
Growth,%
NetProfit(adjusted)
Unadj.shares(m)
Wtdavgshares(m)
CashFlow
FY15 FY16e FY17e FY18e
36,810 37,349 36,036 37,714
6
1
4
5
0
0
0
0
36,810 37,349 36,036 37,714
23,408 23,788 21,627 22,545
660
706
756
809
4,811 4,983 5,220 5,542
7,930 7,871 8,434
8,818
1.4
(0.7)
7.1
4.6
21.5
21.1
23.4
23.4
1,487 1,586 1,706 1,821
6,443 6,285 6,728
6,997
14.5
(2.4)
7.0
4.0
17.5
16.8
18.7
18.6
298
168
143
120
345
331
517
727
0
0
0
0
6,490 6,449 7,102
7,603
2,113 2,128 2,344 2,509
4,377 4,321 4,758
5,094
0
0
0
0
4,377 4,321 4,758
5,094
21.5
(1.3)
10.1
7.1
4,377 4,321 4,758
5,094
140
140
140
140
140
140
140
140
BalanceSheet
Y/EMar,Rsmn
Cash&bank
Marketablesecuritiesatcost
Debtors
Inventory
Loans&advances
Othercurrentassets
Totalcurrentassets
Investments
Grossfixedassets
Less:Depreciation
Add:CapitalWIP
Netfixedassets
Totalassets
Currentliabilities
Provisions
Totalcurrentliabilities
Noncurrentliabilities
Totalliabilities
Paidupcapital
Reserves&surplus
Shareholdersequity
Totalequity&liabilities
FY15
2,315
412
2,352
409
489
163
6,139
2,497
31,761
12,203
2,541
22,099
30,735
FY16e
1,823
3,200
2,386
445
505
164
8,524
2,497
34,312
13,789
2,490
23,013
34,034
FY17e FY18e
4,482
7,433
3,264
3,329
2,302
2,410
417
441
516
527
166
168
11,148 14,307
2,497
2,497
36,762 39,111
15,495 17,316
2,440
2,392
23,708 24,187
37,352 40,990
2,185 2,221 2,053

1,163 1,179 1,196
3,348 3,400 3,248
6,406 6,343 6,280
9,754 9,743 9,528
1,400 1,400 1,400
19,581 22,891 26,424
20,981 24,291 27,824
30,735 34,034 37,352
Source:Company,PhillipCapitalIndiaResearchEstimates
2,133
1,212
3,345
6,217
9,562
1,400
30,028
31,428
40,990
Y/EMar,Rsmn
Pretaxprofit
Depreciation
Chginworkingcapital
Totaltaxpaid
Cashflowfromoperatingactivities
Capitalexpenditure
Chgininvestments
Chginmarketablesecurities
Otherinvestingactivities
Cashflowfrominvestingactivities
Freecashflow
Debtraised/(repaid)
Dividend(incl.tax)
Cashflowfromfinancingactivities
Netchgincash
FY15
6,490
1,487
342
1,804
6,516
2,010
1,805
70
127
3,873
2,643
2,072
771
2,842
199
FY16e
6,449
1,586
10
2,128
5,897
2,500
0
2,788
0
5,288
609
100
1,001
1,101
492
FY17e FY18e
7,102 7,603
1,706 1,821
26
20
2,344 2,509
6,438 6,895
2,400 2,300
0
0
64
65
0
0
2,464 2,365
3,974 4,530
100
100
1,214 1,479
1,314 1,579
2,660 2,950
ValuationRatios
PerSharedata
EPS(INR)
Growth,%
BookNAV/share(INR)
FDEPS(INR)
CEPS(INR)
CFPS(INR)
DPS(INR)
Returnratios
Returnonassets(%)
Returnonequity(%)
Returnoncapitalemployed(%)
Turnoverratios
Assetturnover(x)
Sales/Totalassets(x)
Sales/NetFA(x)
Workingcapital/Sales(x)
Receivabledays
Inventorydays
Payabledays
Workingcapitaldays
Liquidityratios
Currentratio(x)
Quickratio(x)
Interestcover(x)
Dividendcover(x)
Totaldebt/Equity(%)
Netdebt/Equity(%)
Valuation
PER(x)
PEG(x)yoygrowth
Price/Book(x)
Yield(%)
EV/Netsales(x)
EV/EBITDA(x)
EV/EBIT(x)
FY15 FY16e
FY17e
FY18e
31.3
21.5
149.9
31.3
41.9
44.1
5.5
30.9
(1.3)
173.5
30.9
42.2
39.8
6.2
34.0
10.1
198.7
34.0
46.2
42.3
7.5
36.4
7.1
224.5
36.4
49.4
44.1
9.1
15.4
20.9
17.3
13.7
17.8
15.2
13.6
17.1
14.9
13.2
16.2
14.4
1.9
1.9
1.2
1.2
1.7
1.7
0.0
0.0
23.3
23.3
4.1
4.4
23.9
23.8
1.8
2.1
1.9
2.6
1.8
2.5
21.6
37.3
5.7
5.0
6.9
5.6
(4.1) (1.9)
15.4
15.6
0.7 (12.0)
3.2
2.8
1.1
1.3
1.8
1.7
8.3
8.1
10.3
10.2
1.7
1.0
1.5
0.0
23.3
4.2
23.1
2.8
1.7
1.0
1.6
0.0
23.3
4.3
23.0
3.2
3.6
3.4
46.9
4.5
4.5
(11.6)
4.5
4.3
58.2
4.0
3.7
(20.0)
14.2
1.4
2.4
1.6
1.7
7.2
9.1
13.2
1.9
2.1
1.9
1.5
6.6
8.3
GujaratStatePetronetLtd(GUJSIN)
SteadyoutlookonstrongGujaratfooting
2December2015
Gujarat State Petronet (GSPL) has a near monopolistic presence in gasintensive

Gujarat,whichhasbothdomesticandLNGsupplysourcesandanchorcustomers.
GSPL was established as a transmission support company for GSPC, hence benefits
fromgroupsynergies(GSPCoperatesacrossthegaschain).
With PNGRB relooking at tariff assumptions following APTELs order, we expect a
tariffhikeforGSPLinFY17webuildinaconservative10%increaseinFY17.
~26%interestinGujaratGasCGDcompanyaddsRs27/sharetoGSPLsSOTP.GSPLis
slowlyexpandingoutsideGujaratwithnationalpipelinesplanned.
NearmonopolisticGujaratpresenceprovideaccesstogasintensiveconsumers
GSPLhasanearmonopolisticpresenceinGujaratwithits~2,200kms,43mmscmdnetwork
connecting supply and demand centres. Gujarat has anchor customers in four fertiliser
plants,~15gasbasedpowerplants,threemegarefineries,petchemplants,andCGD.RLNG
demand from these customers would improve as LNGs competiveness to liquid fuels
rationalises (LNG forms 80% of GSPLs volumes) due to its clean and hassle free nature.
StrandedgasbasedpowerplantpolicyhasgivenafilliptoGSPLsvolumeswithapotential
of~3mmscmdadditionalRLNGsupply,whichis10%+ofbasethroughput.
GSPCgroupsynergiescreateopportunities,PLNGexpansion/Mundratoupvolumes
GSPLisapartoftheGSPCGroup,whichisintobulkgasmarketing,CGD,LNGandpowerin
Gujarat.ThisprovidessynergyforGSPLasitistheprimarytransporterofGSPCsgas.With
PLNGs5mmtpaDahejexpansionandGSPCs2.25mmtpacapacitybooking,webelieveGSPL
couldget~3mmscmdofadditionalvolumes.FurthercommissioningofMundraLNGterminal
would help offset RIL petcoke gasifcation volume risk during FY19/20. We estimate base
volumes growing to 27mmscmd by FY18 from ~23.5mmscmd in FY16,with total volumes
(includingpowersectordelta)at30mmscmd,whichisa9%threeyearsvolumeCAGR.
TariffuptickexpectedasPNGRBamendsregulation,initiatesrevisionprocess
Following GSPLs appeal before APTEL, the Tribunal had ordered PNGRB to relook at the
tariff assumptions and redetermine GSPLs tariffs. While GSPL has appealed on volumes,
capex, inflation rate, and system usage of gas, PNGRB had already published draft
amendments on tariffs where it has revised the volume divisor by lowering the capacity
assumptionto75%from100%.Hence,webuilda10%yoybasetariffgrowthinFY17and
keepitflatthereafter.PNGRBhasalreadyinitiatedanopenhouseonseveralGAILpipelines
andasperAPTELstimeline,tariffrevisionislikelybyFY16end.
IncreasingexposureinCGD,nationalpipelinestohelppanIndiaexpansion
GSPLhasa25.8%stakeinGujaratGas(mergedentity),whichwevalueatRs27/share.Ithas
also won Amritsar GA under PNGRB bidding and has a minor exposure in Sabarmati Gas
(CGD),GSPCLNG,andothers,whichprovideaBVbasedvalueofRs3/share.Itisdeveloping
threecrosscountrypipelinesincollaborationwithIOCL/BPCL/HPCL(atpreliminarystage)to
whichweassignasimpleBVbasedvalueofRs2/share.However,thesepipelinesofferan
eventualpanIndiapresencetoGSPL.
ReinitiatecoveragewithaBuyandtargetpriceofRs155
We reinitiatecoverage on GSPL witha Buy ratingand SOTP based targetpriceofRs 155,
whichprovides15%upside.With9%volumeCAGRand10%yoybasetariffgrowthinFY17,
weestimateGSPLtosee20%earningsCAGRinFY1518.OurSOTPcomprisesofRs123from
existing gas transmission and minor power business, Rs27 from GGL stake, and Rs 5 from
others.
BUY
CMPRS136
TARGETRS155(+15%)
COMPANYDATA
O/SSHARES(MN):
MARKETCAP(RSBN):
MARKETCAP(USDBN):
52WKHI/LO(RS):
LIQUIDITY3M(USDMN):
PARVALUE(RS):
563
77
1.1
141/96
1.8
10
FII/NRI:
FI/MF:
NONPRO:
PUBLIC:
GOVT:
Jun15
37.7
23.5
22.5
2.2
15.3
Mar15
37.7
22.7
22.8
2.4
15.7
Dec14
37.7
22.1
23.4
3.6
15.5
PRICEPERFORMANCE,%
ABS
RELTOBSE
1MTH
5.4
7.4
3MTH
10.2
10.7
1YR
21.3
30.2
PRICEVS.SENSEX
210
180
150
120
90
60
30
Apr/13
Apr/14
GSPL
Apr/15
BSESensex
KEYFINANCIALS
Rsmn
NetSales
EBIDTA
NetProfit
EPS,Rs
PER,x
EV/EBIDTA,x
P/BV,x
ROE,%
Debt/Equity(%)
FY16E
10,445
9,027
4,343
7.7
17.6
8.9
1.9
10.9
28.9
FY17E
11,976
10,467
5,405
9.6
14.2
7.4
1.7
12.3
25.9
FY18E
13,346
11,718
6,333
11.2
12.1
6.2
1.6
13.0
23.1
GUJARATSTATEPETRONETLTD REINITIATINGCOVERGE
InvestmentThesis
GSPLsconcentratednetworkinGujaratputsitinasweetspottobethefirsttocatch
higher spot RLNG volumes and incremental power sector demand coming through
Gujaratbased LNG terminals. We expect tariff hike by the end of FY16 as PNGRB
initiatestherevisionprocess.
MonopolisticpresenceinGujaratprovidesgasintensiveconsumers
GSPL has a nearmonopolistic presence in Gujarat with a~2,200km networkwith a
capacity of 43mmscmd (31mmscmd high pressure, 12mmscmd low pressure). This
network connects gas supply sources of Hazira/Dahej/Vapi (access to western
offshoregasfields,KGD6tapoff,Gujaratonshore,PLNGDahej,andShellHaziraLNG
terminals) to demand centres in south and central Gujarat and Saurashtra regions,
which include Surat, Bharuch, Vadodara, Ahmadabad, Patan, Bhavnagar, Mehsana,
Rajkot,Morbi,Valsad,Jamnagar,Kutch,andAmreli.
GSPLsGujaratnetwork
Gujaratisahighlyindustrialisedstatewithmajoranchorloadcustomerslikefertiliser
and power plants and refineries. It has four fertiliser plants GNFC Bharuch
(0.7mmtpaureacapacity),GSFCVadodara(0.4mmtpa),IIFCOKalol(0.5mmtpa),and
KRIBHCO(1.7mmtpa),whichconsumeover6mmscmdofgas.
Around 15 gasbased power stations that were operating at low PLFs due to gas
availabilityissueshaveseenimprovementduetothegovernmentspolicyofreviving
stranded gasbased power plants. In the near term, management expects
incremental volume of ~2mmscmd from this policy, which it then expects will
increaseto3mmscmd.Thisisover10%ofGSPLscurrentbasevolumeof24mmscmd.
Inanoptimisticcase,volumescanriseto5mmscmd.
AnchorloadcustomersinGujarat
UreaFertiliserPlantsinGujarat
mmt/mmscmd
GNFC
GSFC
IIFCO
KRIBHCO
Total
Location
Bharuch
Vadodara
Kalol
Hazira
Capacity
0.7
0.4
0.5
1.7
3.4
Volumes
0.6
0.4
0.6
1.8
3.3
GasReqd.
1.1
0.7
1.0
3.2
6.0
GasbasedpowerplantsinGujarat
MW/mmscmd
TorrentSUGEN
GPEG,Peguthan
NTPC,Gandhar
NTPC,Kawas
EssarPower
GSECL,Utran
GSECL,Dhuvaran
GSEG
HaziraCCPP
GSPC
DGEN
GIPCLI
GIPCLII
TorrentUnosugen
Total
Location
Surat
Bharuch
Bharuch
Surat
Hazira/Surat
Surat
Anand
Hazira/Surat
Hazira/Surat
Pipavav
Bharuch
Vadodara
Vadodara
Dahej
Capacity
1148
655
657
656
515
518
595
156
351
702
1200
145
165
383
7845
Sep15PLF
49.5%
12.8%
29.3%
23.8%
0.0%
45.6%
4.8%
5.9%
0.0%
0.0%
37.7%
55.0%
2.0%
0.0%
GasReqd
5.2
3.0
3.0
3.0
2.3
2.4
2.7
0.7
1.6
3.2
5.5
0.7
0.8
1.7
35.7
RefineriesinGujarat
mmtpa/mmscmd
RILDTA+SEZ
EssarOil
IOCL,Gujarat
Total
Location
Jamnagar
Vadinar
Koyali
PotentialCrudeVol.
67
20
18
105
GasReqd
7.0
2.5
2.2
11.7
LargecustomerslikelytocontinueRLNGuse
While we are cautious on small/medium industries, large customers are likely to
continueRLNGusageduetothefuelscleanandhasslefreenatureandsecurityof
supply.RLNGcurrentlyforms80%ofGSPLstotalvolumes.Withstabilisationinoilto
gasparity,demandfromlargerliquidfuelcustomerswouldgrow.
Gujarat is home to threemega refineries RIL Jamnagar (62mmtpa nameplate

capacity), Essar Oil Vadinar (20mmtpa) and IOCL Koyali (13.7mmtpa) which
togethercanconsumeover10mmscmdofgas.EssarOiliscurrentlyshippingless
than 1mmscmd of gas to its Vadinar refinery, which we expect will rise to
2mmscmd. IOCL is planning to expand its Koyali refinery capacity (by almost
5mmtpa) to 18mmtpa by FY19/20 which implies ~0.5mmscmd of additional
potentialgasdemand.
ONGCpetroadditionsLtd(OPaL)isanotherlargecustomerthatisintheprocess
of commissioning its petrochemical plant in Dahej, which would eventually
consume 1mmscmd+ of gas against scurrent erratic consumption of
~0.3mmscmd.WebelieveEssarandOPaLarekeynewcontracts(withtakeorpay
clauses)thatwillstabiliseatfullcontractedquantityinthenextyear.
Besidesthis,thereisawideCGDnetworkinthestate,whichconnectstovarious
smallandmediumscaleindustries.
DomesticgassuppliesfromONGCswesternassetsarealsoexpectedtogrowby
~10mmscmd from fields like Daman and Bassein (EOR) and GSPL could be a
residualbeneficiaryofthis.
GSPL, along with JV GSPL India Gasnet, has entered into a tripartite agreement
with Cairn India for building a 200km, US$ 100mn (Rs 6.5bn) pipeline from
RaageshwariterminaltoPalanpurinGujarat.Cairnaimstoproduce3mmscmdof
peakgasfromRajasthanandGSPLsparentcouldshipsomeofthisgasthroughits
Gujaratnetwork.
Groupsynergyopportunities;PLNGexpansion/Mundraupvolumes
GSPLisapartoftheGSPCGroup,whichhaswidebusinessinterestwithinGujaratin
theformofbulkgasmarketing,CGD,LNG,andpower.GSPCcurrentlysells~3mmtpa
of LNG, inclusive of CGD sector, of which it markets most within Gujarat. This
provides synergy for GSPL, as it is the primary and preferred transporter of GSPC
GroupsgasvolumeswithinGujarat.
GSPC currently has a 1.25mmtpa LNG contract with BG, with an option to be
increasedto2.5mmtpabyFY18.GSPChasalsoformallybooked2.25mmtpacapacity
atPLNGsDahejterminal,inclusiveofDahejterminals5mmtpaexpansion.Already,
GSPCisdrawing1.25mmtpavolumesthroughDahejwebelievethatafterDahejs
expansion, GSPL could receive ~1mmtpa LNG or ~3mmscmd of gas volumes to its
network (10%+ of current base volumes).GSPCpromoted Mundra LNG terminal is
progressingconstructionactivityiscurrentlyonandweexpectittobecompleteby
FY18.Wehavebuiltin10%capacityutilisationoftheterminalinFY19.
GSPLsvolumeoutlook
Base
35
30
mmscmd
Total
30.0
27.3
25
21.1
23.0
27.0
3.0
3.0
1.5
21.1
23.0
23.5
24.0
FY14
FY15
FY16E
FY17E
27.3
10
25.0
20
15
PSDF
31.0
28.0
3.0
3.0
27.0
25.0
FY18E
FY19E
28.0
5
0
FY13
FY20E
PLNGsexpansiontoadd3mmscmdtovolumes
OurvolumeexpectationforGSPLoverthenextfiveyearsincludesincrementalflows
from PLNGs Dahej expansion in FY18 and Mundras LNG terminal by FY19/20,
partiallyoffsetbyRILspetcokegasificationproject.Webuildadditional~3mmscmd
(1mmtpa LNG) gas volumes in FY18 from current base throughput of ~24mmscmd.
This, along with 3mmscmd of (assumed) peak volumes from strandedpowerplant
revivals, we expect GSPLs total pipeline throughput to rise to 30mmscmd by FY18
from2425mmscmdcurrently.
VolumeeventsforGSPL
DahejLNGterminalexpansionby5mmtpainFY18
RILspetcokegasificationprojectinFY19
MundraLNGterminalsimprovingcapacityutilisationupto
80%byFY23
PSDFgasbasedpowerplantvolumes
Potentiallyaddcloseto1mmtpaLNGor~3mmscmdofRLNGtoGSPLsbasevolumes
Canleadto40%cutinRILsbasedemandof6mmsmcdcurrently,whichisa
2.4mmscmddeclineinFY19,partiallyoffsetbyMundraLNGterminalvolumes
Canadd3mmsmcd+volumesannuallytoGSPLduringthisperiod
Assumingvolumesat3mmscmd.Couldexceed.However,thiswillbeadjustedFY20
onwardstobuild40mmscmdpeakvolumeforGSPLbyFY25
RILspetcokegasificationplanttohaveaneteffectof2mmscmdinFY18/19
Weassumea2mmscmdyoyvolumedeclineinFY19duetoRILspetcokegasification
project,whichwillbepartiallyoffsetbyMundrasLNGcommissioning.Basedonour
understanding,RILsrefinerieswouldmaintain34mmscmdvolumesthisalongwith
itspetrochemicalsbusinessandownLNGmarketingventure(IndiaGasPvt.Ltd.),will
not let RILs volume fall substantially. Nevertheless, we build our estimates on a
6mmscmd base volume for RIL and cut it by 40% in FY19 to ~2.4mmscmd this is
partiallyoffsetbyMundraLNGterminalcommissioning).
Mundratoadd10mmscmdduringFY2023
FY20onwards,weexpectvolumestoincreaseby~3mmscmdannuallyuptoFY22to
touch 37mmscmd, as Mundra terminals capacity utilisation improves to 80%. We
assumeapeakvolumeof40mmscmdbyFY27ourvolumeCAGRassumptionis9%
in FY1518 and 4% CAGR during FY1825E. Additional upsides can come from the
ShellHaziraexpansionandHPCLsChharagreenfieldLNGterminal.
SeetariffuptickasPNGRBamendsregulation,initiatesrevision
We expect traction in the tariffrevision process based on the Appellate Tribunal
(APTEL)s direction after which PNGRB initiated the process to relook at tariff
assumptions.
PNGRBTariffSituation
PNGRBsSeptember2012tariffordercutGSPLsprovisionalinitiallevelisedtariffby
13%fromtheexistingrateandby39%fromthefiledratetoRs23.99/mmbtu(GCV)
retrospectively (from November 2008, which was the date of tariff regulations
notification). GSPL had challenged this order before APTEL on the grounds that the
date of applicability of the order should be the date of authorisation of GSPLs
pipeline(27July2012).APTELupheldthechallengeandPNGRBpassedarevisedtariff
order in February 2014 and raised levelised tariff to Rs 26.58/mmbtu, 11% higher
thantheprevioustariff.
Besides GSPL, GAIL had also challenged PNGRB before APTEL on computation of
tariff.InMay2015,APTELaskedPNGRBtocompletetheprocessofdeterminationof
final tariff by March 2016 for pipelines such as DabholBangalore pipeline and five
others.Subsequently,PNGRBhasinvitedpublicconsultationdocumentsfornetworks
likeDabholBangalore,KochiMangaloreBangalore,andGAILCauveryBasinitisin
theprocessofreceivingstakeholdercommentsonthis.Anopenhouseisinprocess,
afterwhichthetariffrevisionprocesswillbeaccelerated.
PNGRBhadpublishedadraftamendmenton"PNGRB(DeterminationofNaturalGas
PipelineTariff)Regulations,2008"inJuly2015whereitrevisedthevolumedivisorfor
determinationofunitnaturalgaspipelinetariffbyloweringthecapacityassumption
to75%ofcapacityfrom100%earlier.Hence,forthefirstfiveyears,tariffswouldbe
75% of applicable percentage utilisation (60%/70%/80%/90%/100%) and 75% (of
100%)fromthesixthyearonwards.Thismeans,incaseofpipelineswhereutilisation
levelsarelower,unittariff,whichisdeterminedbyusingnormativevolumedivisor,
wouldnowbehigherleadingtotariffrevisions.
GSPLstariffdetails
PNGRBTariffOrderForGSPL'sHighPressureGujaratNetwork
OrderDate
NetworkLength
PNGRBCapacityAssumption
TariffProcess(Rs/mmbtu)
ExistingTariff
FiledTariff
ChangeInInflationRate
DisallowanceofUnaccountedGas
VolumeRevision
CapexChange
IRRRevision
SpurLineRemoval
ManpowerCostAdjustments
No.OfDaysConsidered
FutureCapexForOtherAssets
DepreciationChange
EconomicLifeAdjustments
Compressor&HeatingSystems
RecurringCapexonCompressors
ResidualValueRework
FurtherManpowerAdjustments
ApprovedTariff
ChangetoFiledTariff
ChangetoExistingTariff
Zonaltariffs
11Sep12
2,239
30.5
Impact
0.4
1.6
7.8
4.0
1.3
0.5
1.6
0.0
0.2
0.5
0.0
0.0
0.3
0.2
0.2
kms
mmscmd
Net
27.4
39.6
39.1
37.5
29.7
25.8
27.1
26.6
24.9
24.9
24.7
24.3
24.2
24.3
24.0
23.8
24.0
24.0
39%
13%
Rs/mmbtu
Zone1
Zone2
Zone3
FiledbyGSPL
19.00
28.57
38.04
ApprovedbyPNGRB
18.49
27.80
37.02
RevisionoftariffbasedonGSPL'sAPTELappeal(Rs/mmbtu)
Sep2012Order
Feb2014Order(BasedonAPTELAppeal)
23.99
26.58
Eff.Jul12
PNGRBtarifforderforGSPL'slowpressureGujaratnetwork
OrderDate
NetworkLength
PNGRBCapacityAssumption
TariffProcess(Rs/mmbtu)
ExistingTariff
FiledTariff
RevisioninNetBlock
CapexChange
OpexAdjustments
DisallowanceofUnaccountedGas
EconomicLifeAdjustments
ChangeInInflationRate
ChangeinTerminalValue
IRRRevision
VolumeRevision
ApprovedTariff
ChangetoFiledTariff
ChangetoExistingTariff
Source:PNGRB,Company,PhillipCapitalIndiaResearch
27Jun13
58.4
12.0
Impact
0.7
0.7
0.3
1.3
0.1
0.1
0.1
0.2
0.3
kms
mmscmd
Net
6.1
5.1
4.4
3.7
3.4
2.1
2.0
1.9
2.0
2.2
1.9
1.9
63%
69%
While GSPLs differences are on multiple grounds such as including capex, inflation
rate, and system usage of gas, the volume divisor amendment is something that
PNGRB has accepted; PNGRB had sought and already received comments on this
fromkeystakeholdersGAIL,RGTIL,GSPL,IOCLandGGL.
HowwillthenewtariffaffectGSPL?
ForGSPL,PNGRBhasdeclaredaprovisionaltotalcapacityof30.49mmcmdandsince
theGujaratnetworkwasmorethanfiveyearsold,volumedivisorusedwas100%of
capacity against 15/20/22/24/26mmcmd filed by GSPL during FY0913 and against
actual volumes of 15/32/36/34/27mmcmd. This led to PNGRB shaving off Rs
7.8/mmbtufromGSPLsfiledtariffofRs39.6/mmbtuonSeptember11,2012,withan
effectivedateofNovember2008.
WebelieveAPTELsamendment(revisingtheapplicabilityoftarifffromthedateof
authorisation,i.e.July2012)willapplytothefiveyearperiodendingJuly2017.The
averageactualvolumeinFY1316is~24.6mmcmd,whichishigherthantherevised
normative volume of 22.87mmcmd (75% of 30.49mmcmd). Hence, the effective
volumedivisoris~19%lower,whichimpliesatheoreticaltariffincreaseof~23%for
GSPLoncetheamendmentisimplemented.
Accounting for the past three years recovery, revised tariffs for the remaining two
years (of the period up to July 2017) would be even higher. With volumes rising,
tariffs would fall in the next revision thoughthis depends on capex assumption,
whichisalsoacontestedarea.VolumedivisorandcapexadjustmentsbyPNGRBinits
initial provisional order amounted to ~Rs12/mmbtu, which is almost 50% of GSPLs
tariff.
While actual impact on averagebook tariff realisation is difficult to ascertain,

considering takeorpay and other adjustments for GSPL, we assume a 10% tariff
revision on base volumes effective FY16 vs. a normative rate of 23% revision (as
indicated above). We keep tariffs flat thereafter. Therefore, our average tariff
realisation will rise to Rs 1,243/mscm from Rs 1,130/mscm OR to Rs 29.8/mmbtu
fromRs27.1/mmbtu.Forevery10%growthinaveragerealisation,FY17EPSwould
increasebyRs1.3.
For1.53.0mmscmdvolumessuppliedtostrandedpowerplants,wetakea50%tariff
cut, which is Rs 622/mscm from FY16 onwards. Hence, we estimate blended tariff
realisation improvingby 7% to Rs 1,170/mscm in FY17from Rs 1094/mscm in
FY16andlargelyflatthereafter.
GSPLsaveragebasevolumetariffrealisations
GSPLsreportedtariffrealisations
Reported/BlendedTariffRealisation(Rs./mscm)
BaseTariffRealisation(Rs./mscm)
1,312
1,400
1,200
1,243 1,243 1,243 1,243
1,153 1,130
1,350
1,312
1,300
1,029
1,250
1,000
1,219
1,170 1,178 1,173 1,180
1,200
800
1,150
600
1,120
1,094
1,100
400
1,050
200
1,000
950
FY13
FY14
FY15
FY13
FY14
FY15
Source:PNGRB,Company,PhillipCapitalIndiaResearch
RisingCGDexposure,nationalpipelinestohelppanIndiaexpansion
GSPLhasa25.8%stakeinGujaratGasmergedentity,whichisIndiaslargestCGD
company.GGLhasapresenceacrossGujarat.Wehavebuiltin8%volumeCAGR
forGGLinFY1720.WeestimateaDCFbasedfairvalueofRs530forGGL,which
impliesamarketcapofRs73bn.Assigninga20%haircut,wevalueGSPLsstakeat
Rs15bn,whichimpliesacontributionofRs27toGSPLsSOTP.
GSPL has also won Amritsar Geographical Area (GA) under PNGRB bidding and
though it is outside its core pipeline business, human resources interlink with
GSPC (as GSPC and group company employees have active engagement) and its
CGD entities would provide adequate technical expertise and experience. The
PunjabHighCourtisalreadypushingdevelopmentofCNG/PNGinthestate.We
havenotassignedanyvalueonthesame.
GSPL also has minor exposure in Sabarmati Gas (CGD), GSPC LNG and others,
whichprovideaBVbasedvalueofRs3.
GSPL, in collaboration with IOCL/BPCL/HPCL, is developing three crosscountry
pipelines MehsanaBhatinda, BhatindaJammuSrinagar and Mallavaram
Bhilwara(Bhopal+Vijaipur).Ithasa52%stakeintheSPVslayingthesepipelines.
All these pipelines are at preliminary stage and current activities include
implementing sections of projects where statutory clearances, environmental
approvals, and ROU have been obtained and EPC tenders floated. GSPL has
investedRs1.7bn(FY15end)intheseSPVs.WeassignaBVbasedvaluationhere
which implies Rs 2 per share. However, these pipelines offer an eventual pan
India presence to GSPL andcan be a longterm growth driver depending on gas
availability.
GSPLsnoncorebusinessvaluation
GujaratGasLtdatFairValue(Rsmn)
CMP(Rs./sh)
No.OfSharesO/S(m)
MarketCapofGGL
At20%Haircut
GSPL'sStake
GSPL'sValue
GSPL'sSharesO/S(mn)
Value/shForGSPL
530
138
72,980
58,384
25.8%
15,034
563
27
SabarmatiGasatPE(Rsmn)
FY15PAT
GSPLStake
GSPL'sShare
Value/shForGSPLat10x
GSPCLNG+Others
At20%haircut,GSPLvalue/sh
1,108
14%
152
2.7
350
0.5
3NewPLatBV(Rsmn)
GIGL
GITL
Total
At20%haircut
Value/shForGSPL
973
728
1,701
1,360
2.4
WeestimateGSPLsvolumeCAGRat9%inFY1518withFY18expectedtoseea11%
yoy jump in volumes to 30mmscmd on PLNGs Dahejterminal expansion. We have
built in a 10% yoy increase in average base tariff realisation to Rs 1243/mscm and
takea50%cutforPSDFvolumesatRs622/mscm.Weassumetariffrevisiononthe
basisofoverhaulingofvolumedivisorassumptionbyPNGRB.Basedontheprimary
assumptionswe estimate GSPLs adjusted PAT to see a 20% CAGR inFY1518 toRs
6.3bn (Rs 11.3 per share). Consequently, average RoE would improve to 14% by
FY18from12%inFY15.
GSPLsstandaloneEBITDAandPAT
GSPLsstandaloneROEandROCE
EBITDA
14
12
10.8
10.5
9.3
9.3
6.3
5.4
5.0
4.2
ROCE
20%19%
6.8
15%
13%
15%
5.9
15%
15%
14%
14%
13%
13% 13%
13% 12%
12%
11%
11%
10%
4.3
3.7
20%
9.0
8
6
ROE
25%
12.0
11.7
10.7
10
Rsbn
Adj.PAT
5%
2
0%
0
FY13
FY14
FY15
FY13
FY14
FY15
FY16E
FY17E
FY18E
FY19E
FY20E
WeestimaterevenuesCAGRof8%inFY1518toRs13.3bnon9%volumeCAGR
and largely flat reported tariff realisation in this period though on a yoy basis
FY17shouldseea7%tariffrevision.
WeestimatetotalexpenditureCAGRat4%CAGRwithopex/mscmlargelyflatat
~Rs170/mscm. With higher volumes, unit opex is likely to reduce due to
economiesofscale.
WeestimateanEBITDACAGRof8%inFY1518toRs11.7bn,whichimplies88%
EBITDAmargininFY18,similartoFY15.
GSPLsstandaloneleverage
NetDebt(Rs.bn)
Debt:Equity(x) RHS
15
10
GSPLsstandalonecapex
0.6
7.6
9.3
7.2
0.5
Capex(Rs.bn)
3.8
4.1
0.4
0.6
2.4
0
0.3
5
2.5
2.5
2.5
2.2
2.0
2.0
FY19E
FY20E
2
3.7
10
0.2
8.8
0.1
15
14.0
20
0.0
FY13
FY14
0
FY13
FY14
FY15
FY16E
FY17E
FY18E
We estimate capex to remain fairly constant at an annual runrate of Rs2.0

2.5bn.
Company likely to become net cash positive by FY18 unless capex exceeds our
target.Debtequitytokeepdeclininggradually.
WeestimatedepreciationtobelargelystableduringFY1518whileinterestwill
declinewithreductionindebtlevels.Weassumeataxrateof35%.
Rsmn
BaseGasVolumes(mmscmd)
PSDFVolumes(mmscmd)
BaseTariff(Rs/mscm)
PSDFTariff(Rs/mscm)
Adjustments&PowerIncome
Revenues
Opex/mscm(Rs)
TotalExpenditure
EBITDA
GrossBlock
Depreciation
DepreciationRate
Debt
Interest
InterestRate
OtherIncome
PBT
TaxRate
Tax
PAT
EPS(Rs)
FY13
27.3
FY14
21.1
FY15
23.0
1,029
1,312
1,153
1,480
11,732
102
1,012
10,720
46,197
1,861
4.0%
16,097
1,263
7.8%
661
8,257
35%
2,876
5,381
9.6
414
10,507
158
1,218
9,289
47,106
1,839
3.9%
14,288
1,418
9.9%
551
6,583
36%
2,391
4,191
7.4
965
10,646
163
1,371
9,275
48,193
2,013
4.2%
11,575
1,178
10.2%
520
6,603
38%
2,500
4,104
7.3
FY16E
23.5
1.5
1,130
565
431
10,445
165
1,418
9,027
49,916
1,864
3.7%
11,475
922
8.0%
441
6,682
35%
2,339
4,343
7.7
FY17E
24.0
3.0
1,243
622
440
11,976
172
1,509
10,467
53,271
1,935
3.6%
11,375
971
8.5%
754
8,315
35%
2,910
5,405
9.6
Valuation
WevalueGSPLonaSOTPbasis.WevalueexistingbusinessusingDCFmethodology
toarriveatanFY17endfairvalueofRs123/share.
Weassume:
Ariskfreerateof8.5%andpremiumof5.5%.
0.9xbeta,lowerthanmarketduetoutilitynatureofthebusiness
Costofdebtof10%;basedona30:70targetdebtequityratio,WACCat11.6%.
Nilterminalgrowth.
Wevalue:
GSPLs25.8%stakeinGujaratGasatRs27/share,basedonourfairvalueofGGL.
The3newpipelinesona1xPB,20%haircutwhichaddsRs2.4/sharetoSOTP.
GSPLs13.8%stakeinSabarmatiGasat10xPE,implyingRs2.7/share.
InterestsinGSPCLNGandothersatRs0.5/share1xPBwith20%haircut.
OurSOTPbasedtargetpriceamountstoRs155/share.
DCF
DCFAssumptions
RiskFreeRate
RiskPremium
Beta
CostOfEquity
CostOfDebt
PostTaxCostOfDebt
WACC
TerminalGrowthRate
8.5%
5.5%
0.9
13.2%
10.0%
6.5%
30.0%
11.6%
0.0%
CoreDCFValuation(FY18E)
NPVOfFCF
TerminalValue
PVOfTV
TotalValue
Less:NetDebt(Y/E)
EquityValue
No.OfSharesO/S(mn)
CorefairValue(Rs)
Rsmn
42,301
83,114
27,649
69,951
630
69,321
563
123
FY18E
27.0
3.0
1,243
622
450
13,346
165
1,629
11,718
57,308
2,073
3.6%
11,275
951
8.4%
1,051
9,744
35%
3,410
6,333
11.2
FY19E
25.0
3.0
1,243
622
460
12,449
185
1,692
10,757
60,538
2,210
3.6%
11,175
932
8.3%
1,396
9,011
35%
3,154
5,857
10.4
FY20E
28.0
3.0
1,243
622
469
13,855
178
1,827
12,028
63,522
2,326
3.7%
11,075
912
8.2%
1,626
10,416
35%
3,646
6,771
12.0
GSPL'sSOTPValuation
Parts(Rs)
CoreGujaratBusiness
GujaratGasStake
3NewPipelines
Others
TargetPrice
Method
DCFBased
FVBased.
BVBased
BVBased
Value
123
27
2
3
155
Our target price for the core business implies 11x PE multiple on FY18 earnings.
Basedona15%upsidetoCMP,werecommendaBuyratingonthestock.
GSPL'sPEBasedValuation
Rs
EPS
TargetMultiple(x)
CoreBusinessTarget
FY15
7.3
FY16E
7.7
FY17E
9.6
FY18E
11.2
11.2
123
Keyrisktoourcall
Reversalinvolumegrowthduetoweakeningofgasdemandfromunfavourable
priceparitytoliquidfuels,generalslowdowninGujarat
Terminationofspecifictriggerslikerevivalofstrandedpowerplants
Customerledissues
NonmaterialisationofexpectedtariffrevisioninFY17,tariffreversals
Operationalrisksduetopipelineexplosions,accidents
CompanyBackground
Gujarat State Petronet Ltd (GSPL) was formed as a transmission support

companyforGujaratStatePetroleumCorp(GSPC)inCY9900.
Thecompanyisapureplaygastransmissionutilityitlayspipelinenetworkand
transportsgasforthirdpartyshippers,whichincludeitsparentGSPCaswellas
otherparties.
GSPL is currently present in Gujarat where it has a 2200km network with a
capacityof43mmscmd,ofwhich12mmscmdislowpressurenetwork.However,
ithasenteredintoaJVwithoilmarketingcompaniesforlayingtrunkpipelines
outsidethestate.GSPLalsooperatesawindpowerbusinessof52.5MWcapacity
inGujarat,whichgeneratedrevenuesofRs375mninFY15.IthasastakeinCGD
and other gas based sectors. GSPLs core promoter is GSPC, which has 37.7%
stake,whileotherGujaratentitieslikeGujaratMaritimeBoardandGujaratUrja
Vikas Nigam hold additional ~9% implying a total holding of 47% among
Gujaratstateentities.
GSPLs revenues are driven by transportation volumes and tariffs. With zonal
tariff regime, GSPL charges different tariffs for different zones (mainly divided
intothreezones)andthelongestflowdistancepaysthehighesttariff.
GSPLtransportsdomesticgasaswellasRLNGandisintenselyconnectedtothe
supplysourcesinSouthGujarat/WesternOffshore(Hazira/Dahej/Vapi).
GSPLs tariff is regulated by PNGRB, which is primarily based on 12% post tax
return as thenetwork is older than the formation of the board and hence was
not subject to any competitive bidding. Tariffs are generally determined based
on various assumptions being noted by PNGRB like capex, regulated volume
assumption,inflationrate,anddepreciation.
GSPLs contracts are term ones with varying periods. During the term, there is
shiporpayarrangementwiththecustomer,whichimpliesthecustomerhasto
payforcontractedcapacitynotutilised.
As per PNGRB regulations, ~25% capacity has to be under common carrier

thoughGSPLbeingapuretransporterisnotsubjecttothis.
GSPLsbusinessiscapitalintensivewhileopexislowduetowhichithasposted
EBITDAmarginof8590%.Employee,maintenanceandsystemusageofgasare
majoroperatingexpenses.
GSPL currently has 133+ customers in sectors ranging from refineries, steel
plants,fertiliserplants,petrochemicalcomplexes,powerplants,glass,textileand
chemicalindustriesandCGD.
GSPLs area of operation includes Surat, Bharuch, Narmada, Baroda, Anand,
AhmadabadDahod,Gandhinagar,Sabarkantha,Panchamahal,Patan,Bhavnagar,
Mehsana,Banaskantha,Surendranagar,Amreli,Botad,Rajkot,Morbi,Jamnagar,
Navsari, Kutchh, Kheda and Valsad and is present in 24 out of 33 districts in
Gujarat.
Currently 366kms of pipelines & gas compressor station at Gana (1+1) of
14mmscmd capacity is under construction. GSPL also won the CGD bid for
Amritsar.
In FY15, GSPL recorded net revenue of Rs 10.6bn and a PAT of Rs 4.1bn. The
company had total assets of Rs.55.4bn as on March 2015 end while current
marketcapstandsatRs.76.4bn.DividendyieldinFY15was1%.
Management
GSPL is currently headed by Mr. Atanu Chakraborty, IAS, MD. Senior executive
managementcompriseofMr.RavindraAgarwal,EDCommercialatGSPC,Mr.NBose
Babu, GM Technical, Operations & Maintenance and Mr. Manish Seth, Head
Finance & Accounts. Mr. M. M Srivastava, IAS is Chairman of the Board which
compriseofnomineedirectorsfromGujaratGovtandthreeindependentdirectors.
Financials
IncomeStatement
Y/EMar,Rsmn
Netsales
Growth,%
Totalincome
Employeeexpenses
EBITDA(Core)
Growth,%
Margin,%
Depreciation
EBIT
Growth,%
Margin,%
Interestpaid
Pretaxprofit
Taxprovided
Profitaftertax
NetProfit
Growth,%
NetProfit(adjusted)
Unadj.shares(m)
Wtdavgshares(m)
CashFlow
FY15 FY16e FY17e
10,646 10,445 11,976
1
2
15
10,646 10,445 11,976
356
382
415
1,016 1,036 1,094
9,275 9,027 10,467
(0.2)
(2.7)
16.0
87.1
86.4
87.4
2,013 1,864 1,935
7,261 7,163 8,532
(2.5)
(1.4)
19.1
68.2
68.6
71.2
1,178
922
971
520
441
754
6,603 6,682 8,315
2,500 2,339 2,910
4,104 4,343 5,405
4,104 4,343 5,405
(2.1)
5.8
24.4
4,104 4,343 5,405
563
563
563
563
563
563
FY18e
13,346
11
13,346
458
1,171
11,718
11.9
87.8
2,073
9,644
13.0
72.3
951
1,051
9,744
3,410
6,333
6,333
17.2
6,333
563
563
BalanceSheet
Y/EMar,Rsmn
Cash&bank
Debtors
Inventory
Loans&advances
Othercurrentassets
Totalcurrentassets
Investments
Grossfixedassets
Less:Depreciation
Add:CapitalWIP
Netfixedassets
Totalassets
Currentliabilities
Provisions
Totalliabilities
Paidupcapital
Reserves&surplus
Shareholdersequity
FY15
4,352
1,504
1,102
3,299
133
10,390
6,595
48,193
17,539
7,765
38,419
55,403
FY16e
7,336
1,476
1,082
3,448
136
13,477
6,595
49,916
19,403
8,541
39,055
59,126
1,930
913
2,843
16,329
19,173
5,630
30,601
36,231
55,403
1,959
925
2,884
16,532
19,416
5,630
34,080
39,710
59,126
FY17e FY18e
10,745 14,979
1,692
1,885
1,240
1,382
3,605
3,769
138
141
17,421 22,157
6,595
6,595
53,271 57,308
21,338 23,411
7,687
6,150
39,620 40,047
63,635 68,798
2,001
938
2,939
16,719
19,659
5,630
38,347
43,976
63,635
2,052
951
3,003
16,893
19,896
5,630
43,272
48,902
68,798
Y/EMar,Rsmn
Pretaxprofit
Depreciation
Chginworkingcapital
Totaltaxpaid
Capitalexpenditure
Chgininvestments
Freecashflow
Equityraised/(repaid)
Debtraised/(repaid)
Dividend(incl.tax)
Netchgincash
FY16e
6,682
1,864
67
2,039
6,440
2,500
0
0
2,500
3,940
0
100
856
956
2,984
FY17e FY18e
8,315 9,744
1,935 2,073
485
445
2,625 3,140
7,139 8,233
2,500 2,500
0
0
0
0
2,500 2,500
4,639 5,733
0
0
100
100
1,130 1,399
1,230 1,499
3,409 4,233
ValuationRatios
FY15 FY16e
PerSharedata
EPS(INR)
Growth,%
BookNAV/share(INR)
FDEPS(INR)
CEPS(INR)
CFPS(INR)
DPS(INR)
Returnratios
Returnonassets(%)
Returnonequity(%)
Turnoverratios
Assetturnover(x)
Sales/NetFA(x)
Receivabledays
Inventorydays
Payabledays
Workingcapitaldays
Liquidityratios
Currentratio(x)
Quickratio(x)
Interestcover(x)
Dividendcover(x)
Totaldebt/Equity(%)
Netdebt/Equity(%)
Valuation
PER(x)
PEG(x)yoygrowth
Price/Book(x)
Yield(%)
EV/Netsales(x)
EV/EBITDA(x)
EV/EBIT(x)
FY15
6,603
2,013
669
2,198
5,749
2,278
738
7
3,022
2,727
2
2,713
657
3,368
641
FY17e
FY18e
7.3
(2.2)
64.4
7.3
10.9
9.3
1.2
7.7
5.8
70.5
7.7
11.0
10.7
1.3
9.6
24.4
78.1
9.6
13.0
11.3
1.7
11.2
17.2
86.9
11.2
14.9
12.8
2.1
8.9
11.3
9.3
8.6
10.9
9.1
9.8
12.3
10.3
10.5
13.0
10.9
0.3
0.2
0.3
0.3
51.6
37.8
107.7
112.3
3.8
3.4
6.2
6.1
31.9
19.9
18.7
(8.7)
2.1
0.9
7.9
9.0
11.5
0.2
0.2
0.3
0.3
51.6
37.8
107.7
116.7
0.3
0.2
0.3
0.3
51.6
37.8
107.7
116.6
0.3
0.2
0.3
0.3
51.6
37.8
107.7
116.7
4.8
4.4
7.8
5.9
28.9
10.4
6.1
5.7
8.8
5.6
25.9
1.4
7.6
7.1
10.1
5.3
23.1
(7.6)
17.6
3.0
1.9
1.0
7.7
8.9
11.3
14.2
0.6
1.7
1.3
6.4
7.4
9.0
12.1
0.7
1.6
1.6
5.5
6.2
7.6
PetronetLNGLtd(PLNGIN)
ValuationballnowinKochiscourt
2December2015
Petronet LNGs (PLNG) leadership position in Indias LNG sector will continue up to
FY1920withitsDahejexpansionbeingtheonlymajorcapacityadditionunderwayin
thecountry.
ItsKochiterminalcontinuestoremainstranded;unlessGAILspipelinesareready,its
utilisationwilltouch20%or1mmtpa(atbest).
Recent rally pricesin most positives at Dahej including sharp volume and earnings
jumpinFY18afterthe5mmtpaexpansion.
FurtherreratingdependsontheKochiterminalsoutlookwherevisibilityislow.
PLNGtocontinueleadershippositionintheIndianLNGsector
PLNGhasbeenatthevanguardofIndiasLNGstory.AmongfourexistingterminalsinIndia,
itsDahejhasacapacityshareof45%+.Otherthanitsphase35mmtpaexpansion,nomajor
additionisexpectedinIndiauntilFY19/20.ThiswouldraiseDahejsmarketshareto56%by
FY18.Afterexpansion,Dahejscapacityisbookedupto105%,whichwouldmakeitalow
risk utility with negligible exposure to spot volumes and marketing margins. PLNG has
announced another 2.5mmtpa expansion. While the Dahej story looks promising up to a
capacityof20mmtpa,beyondthatPLNGhastolookatotherterminalsforgrowth.
TimelypipelineavailabilityisnecessaryforKochisvolumerampupbeyond1mmtpa
TheKochiterminalcontinuestoseelowutilisationof4%despitedeclineinLNGprices.We
expectlocaldemandtocomefromBPCLsKochirefineryexpansion,butvolumesinGAILs
phase1 pipeline would touch 1mmtpa (at best) by FY1920. While some development on
the Mangalore stretch is seen, our channel checks suggest work would start only after
complete ROU acquisition and could take around two years. With GAIL contemplating the
extensionofitsDabholBangalorepipelinetoMangalore,andMRPLpursuinganFSRU,first
moveradvantageiscrucialtotapthe11.5mmtpaMangaloremarket.
ExpectedQatarbreakthroughremovesstockoverhang,butearningsimpactnotmaterial
PLNG stock has reacted positively to reports of RasGas waiving off US$ 1.5bn takeorpay
penalty(from32%deferment)andloweringtermLNGpricesconcernsthatPLNGwould
have to take a hit from potential delays in payment by offtakers have abetted. The stock
has moved up by ~1015% in the last 710 days. We believe this rally discounts expected
volume and earnings upsides from Dahej. The Qatar impasse had an impact only on
additional shipping costs of Rs 1.6bn in CY15 due to idling of a tanker, which resulted in
takeorpaycharges.However,thistoowastobetransferredtoofftakersduetotheback
tobacknatureofthecontracts.
Dahejlargelypricedin,Kochiremainsthenexttrigger
WecalculatefairvalueoftheDahejterminalindependentlyatRs300/shareandvaluethe
stranded Kochi terminal at negative Rs 70/share at current utilisation PLNGs further
reratinghingesonavolumerampup.Weassumeanincreaseto1mmtpabyFY20dueto
lackofvisibilityonpipelineavailability,wekeepitcappedattheselevels.Forevery1mmtpa
volume addition at Kochi from FY20 onwards, PLNGs fair value would rise by Rs 25
30/share.Incomparison,5mmtpaDahejexpansionto20mmtpawouldadd~Rs20/shareto
fairvalue.WhileweremainpositiveonDahej,thevaluationballisnowinKochiscourt.
ReinitiatecoveragewithaNeutralratingandtargetpriceofRs250
WereinitiatecoverageonPLNGwithaNeutralratingandDCFbasedtargetpriceofRs250,
whichimplies7%upside.PosttherecentreliefrallyfromexpectedQatarbreakthrough,we
believemostpositiveshavebeenpricedin.WeassumeDahej/Kochiregastariffescalationof
5% until FY20to Rs 50/85 per mmbtu and nil marketingmargin.Wehave not buildDahej
PhaseIVorGangavaramterminal.
NEUTRAL
CMPRS234
TARGETRS250(+7%)
COMPANYDATA
O/SSHARES(MN):
MARKETCAP(RSBN):
MARKETCAP(USDBN):
52WKHI/LO(RS):
LIQUIDITY3M(USDMN):
PARVALUE(RS):
750
176
2.6
238/160
2.3
10
FII/NRI:
FI/MF:
NONPRO:
PUBLIC:
GOVT:
Jun15
50.0
33.4
4.6
11.6
11.0
Mar15
50.0
33.2
4.3
11.7
11.3
Dec14
50.0
31.6
5.6
11.7
11.7
PRICEPERFORMANCE,%
ABS
RELTOBSE
1MTH
21.2
23.1
3MTH
32.3
32.9
1YR
18.8
27.7
PRICEVS.SENSEX
200
150
100
50
Apr/13
Apr/14
PetronetLNG
Apr/15
BSESensex
KEYFINANCIALS
Rsmn
NetSales
EBIDTA
NetProfit
EPS,Rs
PER,x
EV/EBIDTA,x
P/BV,x
ROE,%
Debt/Equity(%)
FY16E
301,037
18,257
9,450
12.6
18.6
10.5
2.7
14.8
53.2
FY17E
FY18E
249,529 265,498
20,565
28,551
10,632
15,440
14.2
20.6
16.5
11.4
9.2
6.3
2.4
2.1
14.8
18.6
56.4
44.0
PETRONETLNGLTD REINITIATINGCOVERGE
InvestmentThesis
PLNG will continue to be the biggest beneficiary of the LNG boom with Dahej
terminalinanenviablepositionwelluptotheendofthisdecade.However,withthe
recent rally in anticipation of the Qatar breakthrough, most positives at Dahej are
pricedin.FurtherreratingdependsonKochiterminalsutilisation,whichwebelieve
couldreachamaximumof1mmtpaonlybyFY19/20,unlessGAILspipelineissueis
sortedoutwherevisibilityisstillnotclear.
PLNGtocontinueleadershippositioninIndianLNGsector
PLNG has been at the forefront of Indias LNG story. Its Dahej terminal was
establishedin2004withaninitialcapacityof5mmtpa,whichitdoubledto10mmtpa
in FY10. Shells Hazira was the only other terminal that was commissioned with a
largishinitialcapacityof2.5mmtpa,whichitraisedto3.6mmtpabyFY10.
PLNGspositioningintheIndianLNGindustry
Year/
Commission
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16E
FY17E
FY18E
FY19E
FY20E
LNGTerminal
_Capacity(mmtpa)_
CapacityAddition
Addition Cumulative
PetronetDahej
5.0
5.0
ShellHazira
2.5
7.5
None
0.0
7.5
PetronetDahejDebottlenecking
1.5
9.0
None
0.0
9.0
PetronetDahej/ShellHaziraExp.
4.6
13.6
None
0.0
13.6
None
0.0
13.6
None
0.0
13.6
GAILDabhol/PetronetKochi
7.0
20.6
ShellHaziraExp.
1.4
22.0
None
0.0
22.0
None
0.0
22.0
PetronetDahejExp.
5.0
27.0
GSPCMundra/GAILKakinada/Hazira,DabholExp.
14.0
41.0
IOCLEnnore,HPCLChhara,HEnergyJaigarh
18.0
59.0
PLNG PLNG
___Volumes(mmt)___ TerminalUtilisation Capacity Volume
PLNG Others
Total
PLNG others MarketShare
2.5
0.0
2.5
49%
NA
100%
100%
4.9
0.2
5.1
98%
6%
67%
97%
5.6
1.2
6.8
112%
48%
67%
82%
6.3
1.9
8.2
97%
78%
72%
76%
6.3
1.7
8.0
97%
66%
72%
79%
7.8
1.1
8.9
78%
30%
74%
88%
8.6
1.4
10.1
86%
39%
74%
86%
10.8
1.8
12.5
108%
49%
74%
86%
10.3
2.1
12.3
103%
57%
74%
83%
9.7
3.1
12.7
64%
55%
73%
76%
10.3
3.2
13.6
69%
46%
68%
76%
11.8
5.3
17.1
79%
75%
68%
69%
12.4
6.3
18.7
83%
89%
68%
66%
16.2
6.3
22.5
81%
89%
74%
72%
16.6
8.4
24.9
83%
40%
49%
66%
16.8
12.9
29.6
84%
33%
34%
57%
AmongthefourterminalsinIndia,PLNGsDahejhasacapacitymarketshareof45%+
whilePLNGsoverallcapacitymarketshareis68%.Intermsofvolumemarketshare,
PLNG stands at 76% as Hazira and Dabhol operate at lower capacity based on
availabledata.UptoFY19/20PLNGsDahejterminals5mmtpaexpansionistheonly
major capacity addition scheduled in India. This will raise Dahejs market share to
56%andPLNGsto74%byFY18.Afterexpansion,Dahejterminalscapacityisbooked
up to105%, which would make it a lowrisk utility withnegligible exposure to spot
volumesandmarketingmargins.Tollingagreementssignedfor8.25mmtpacapacity
over 7.5mmtpa RasGas comprise of GAIL (2.5mmtpa), GSPC (2.25mmtpa), IOCL
(1.5mmtpa),BPCL(1.0mmtpa)andTorrentPower(1.0mmtpa).
PLNGhasbooked105%ofitsFY18capacitywiththirdparties
FY15
Capacity
Volumes
Rasgas
GAIL
GSPC
OtherTP
Spot
Actual
10.00
10.20
6.76
1.00
0.50
0.54
1.39
Nameplate
10.00
7.50
1.25*
FY18
Capacity
Contracted
Rasgas
GAIL
GSPC
IOCL
BPCL
TorrentPower
Nameplate
15.00
15.75
7.50
2.50
2.25
1.50
1.00
1.00
*GSPC1.25mmtpatollingcontractpostsecondjettywithterminaleffectivecapacityat12.5mmtpa
PLNGhasannouncedanother2.5mmtpaPhaseIVexpansionto17.5mmtpawithan
estimated capex of Rs11bn. Due to two available jetties, the terminal would
eventuallyreachacapacityof20mmtpa.
PLNGLNGcapacitytoincreaseto20mmtpainFY18
Dahejterminaltocontinueoperatingat100%utilisation
25
DajejCapacity
KochiCapacity
DajejVolumes
KochiVolumes
18
14
0.2
12
15
5
mmt
mmtpa
10
15
5
0.6
16
20
10
10
10
10
15
15
1.0
15.8
15.8
0.4
0.1
8
6
10
0.1
10
0.8
15.0
10.3
9.6
10.2
FY13
FY14
FY15
11.6
12.0
2
0
0
FY13
FY14
Dahej terminal continues to be the strongest point for PLNG with its strategic
positioningand lowcost brownfield expansion, which makes it most competitive in
comparison to greenfield terminals. A 5mmtpa expansion in Dahej would cost Rs
28bncomparedtoRs50bn+forasimilarnewterminal.Hence,Dahejsexpansioncan
generatea27%ROCEatcurrentregastariffofRs41/mmbtu.Foranewterminalto
generatethesameROCE,itwouldrequire67%highertariffatRs67.5/mmbtu.
Dahejexpansionsarelowcapexaffairs
Phase
III
IV
V(assumed)
Jetty
Total
Capex/mt(Rs)
Capex/5mmtpa(Rsmn)
Capexofsimilarnewterminal(Rsmn)
mmtpa
5.0
2.5
2.5
10
Rsmn
24,000
11,000
11,000
10,000
56,000
5,600
28,000
50,000
The 5mmtpa capacity addition provides a Rs20/share valuation upside for PLNG at
100%utilisation,thoughthiswouldbebackended.Webelievebeyond20mmtpaof
Dahejs capacity, PLNG has to look at new terminals for growth and expansion. By
FY20,multiplenewLNGterminalsareplanned.Thoughtheseterminalswouldhave
less competitive tariffs, many of them are promoted by players who happen to be
PLNGscustomers.
Dahejtoremainmostcompetitive
Rsmn
Capacity(mmtpa)
Capex
Debt
Equity
OPEX(Rs/mmbtu)
RegasCharge(Rs/mmbtu)
EBITDA(Rs/mmbtu)
EBITDA
Depreciation
EBIT
Interest
PBT
Tax
PAT
ROE
ROCE
Dahej
5.0
28,000
19,600
8,400
6.5
40.5
34.0
8,670
1,036
7,634
1,960
5,674
1,872
3,802
45.3%
27.3%
Kochi*
5.0
44,000
30,800
13,200
6.5
68.4
61.9
15,785
1,628
14,157
3,080
11,077
3,655
7,421
56.2%
32.2%
Mundra
5.0
45,000
31,500
13,500
6.5
61.5
55.0
14,025
1,665
12,360
3,150
9,210
3,039
6,171
45.7%
27.5%
New
5.0
50,000
35,000
15,000
6.5
67.5
61.0
15,555
1,850
13,705
3,500
10,205
3,368
6,837
45.6%
27.4%
*AssumingKochiat100%utilisation
TimelypipelineavailabilitynecessaryforKochivolumerampup
Kochiterminalcontinuestoremainunderutilisedat4%capacitywhiledevelopment
remainsstalledinthekeyGAILpromotedKochiMangaloreBangalorepipeline,which
iscrucialfortheterminalsaccessintodemandcentresofTamilNaduandKarnataka.
Currently, only Phase1 comprising of 43km trunk line is operating up to Alwaye
Udyogmandal area. The Alwaye Kanjirkkode stretch along Mangalore and the
diversion to Pallakad towards Coimbatore, Salem and Bangalore faced local issues
relating to right of use (ROU). Though the Kerala government is very keen, farmers
haveprotestedthepipeline.InDakshinKannada,too,thepipelineisopposed.
RoutemapofKochiBangaloreMangalorePipeline
Mangalore area demand is estimated at 1.01.5mmtpa with MRPL and Mangalore

Chemicals Fertilizer being anchor customers. There are a number of small and
mediumscaleindustriesintheregionatThrissur,Kozhikode,andKannur.
The Bangalore stretch has faced opposition from many fronts, especially in Tamil
Nadu, where the state government is also against laying the pipeline through farm
landsandhassuggestedalternativeroutes(likealonghighways)whichGAILhasnot
agreedto.Thematterisnowsubjudiceandevenifthereisafavourablerulingfrom
the Supreme Court, without the state governments support, the project will be
difficulttoimplement.CoimbatoreandSalemaresizeabledemandcentresalongthe
Bangalorestretch.
Webelieve1mmtpavolumesatbestcanbeachievedbyFY1920dueto0.6mmtpa
additional demand from BPCLs Kochi refinery after its 6mmtpa expansion by CY16
andfromgrowthinothersmallercustomergroups,whichwouldcomeduetolower
spotLNGpricescontinuing.However,evenatcurrentlowLNGprices,Kochivolumes
havenotseenanytraction.
KochiBangaloreMangalorepipeline
Highlights
DistrictsCovered
TotalLength(kms)1,114kms
AluvatoKanjirkkode,Kanjirkkodeto
Mangalore,PallakadtoBangalore
Capex:Rs37bn(Rs3040mn/km)
PhaseIKochitoAlwaye(96kmsincl.Spur
Lines)Rs2.76bn;43kmsofpipeline
completedfromPuthuvypeterminalto
Kalamassery
PhaseIITorequire36months(18months
Mangalore)AlwayetoKanjirkkode;
KanjirkkodetoMangalore;Kanjirkkodeto
Pallakad&Bangalore
PhaseIILength1,018kms,CapexRs
27.65bn(RevisedtoRs30bn+)
KeralaErnakulam,Thrissur,Pallakad,
Mallapuram,Kozhikode,Kannur,Kasargod
(500kmscoveragein7districts)&
Kayamkulam
Tamil Nadu Coimbatore, Erode, Salem,
Dharmapuri
Karnataka Dakshin Kannad, Chamrajnagar,
Mandya, Bangalore (Extension to Hassan,
Mysore)
Latest news reports have suggested some development on the Mangalore stretch.
This was also signalled by PLNGs management. However, our channel checks
suggestthatworkwouldstartonlyaftercompleteROUacquisitionanditwilltaketwo
yearsforthepipelinetobefullyreadyforgasevacuation.
Timely completion of this pipeline is crucial for the longterm viability of the Kochi
terminal.GAILisalreadycontemplatinganextensionofDabholBangalorepipelineto
MangaloreandMRPLisalsopursuinganFSRU.Firstmoveradvantageiscrucialtotap
the 1.01.5mmtpa Mangalore market. Kochi terminal currently suffers an annual
EBITDAlossof~Rs500mnandPBTlossofRs4bn.
Kochiterminalincomestatement
Rsmn
Volumes(mmt)
RegasTariff(Rs/mmbtu)
GrossMargin
OPEX
EBITDA
Depreciation
EBIT
Interest
PBT
FY14
0.1
63.0
650
870
(220)
1,200
(1,420)
1,080
(2,500)
FY15
0.1
65.9
670
1,200
(530)
1,650
(2,180)
1,800
(3,980)
FY16E
0.2
69.2
692
1,224
(532)
1,642
(2,174)
1,800
(3,974)
FY17E
0.4
72.7
1,482
1,248
234
1,634
(1,400)
1,800
(3,200)
FY18E
0.6
76.3
2,334
1,273
1,061
1,625
(564)
1,800
(2,364)
FY19E
0.8
80.1
3,268
1,299
1,969
1,617
352
1,800
(1,448)
FY20E
1.0
84.1
4,289
1,325
2,965
1,609
1,355
1,800
(445)
ExpectedQatarbreakthroughremovesoverhang,butearningsimpactnotmaterial
The Qatar LNG contract overhang was a lowprobability risk for PLNG, as despite
binding backtoback contracts, there were concerns on some spill over of takeor
pay penalty due to offtakers GAIL, IOCL and BPCL being PLNGs copromoters. A
delay in payment could have led to PLNGs balance sheet taking some hit for an
intermediateperiod. PLNG was also absorbing Rs 400mn every quarter on shipping
takeorpaycharges,asoneofthetankerswaslyingidlethiswouldprobablyhave
beenadjustedoncethetakeorpaypenaltieswereclearedbyofftakers.
Termcontractofftake
Players
Total
GAIL
IOCL
BPCL
___________mmtpa___________
Rasgas
Gorgon
7.50
1.44
4.50
0.43
2.25
0.43
0.75
0.58
___________%___________
Rasgas
Gorgon
100%
100%
60%
30%
30%
30%
10%
40%
PLNG stock has reacted positively to reports of RasGas agreeing to waive off US$
1.5bn or ~Rs 100bn takeorpay penalty (from 32% deferment) and also lowering
termLNGpricesby40%+asconcernsonPLNGabetted.Thestockhasmovedupby
1015%inthelast710days.Webelievethisreliefrallydiscountsexpectedvolume
and earningsupsides fromDahej. The clearing of the Qatar impassewill bring back
the deferred volumes, though with capacity utilisations close to 120%, stranded
powersectorvolumesmayhavetobereplaced.
PLNGstockperformanceafterreportsofQatarnegotiationbreakthrough
240
220
200
24Nov15
22Nov15
23Nov15
21Nov15
20Nov15
19Nov15
18Nov15
17Nov15
16Nov15
15Nov15
14Nov15
13Nov15
12Nov15
11Nov15
9Nov15
10Nov15
8Nov15
7Nov15
6Nov15
5Nov15
4Nov15
3Nov15
2Nov15
180
Dahejlargelypricedin,Kochiremainsthenexttrigger
IfKochiterminalwouldnothavebeencommissioned,weestimatefairvalueofPLNG
fromDahejterminalindependentlyatRs300/shareat15mmtpacapacity.Wevalue
thestrandedKochiterminalatnegativeRs70/shareatcurrent4%utilisation.PLNGs
fairvalueat4%utilisationisRs230/share.Weassumeanincreaseto1mmtpabyFY20
though due to lack of visibility on pipeline availability, we keep it capped at these
levels. For every 1mmtpa volume addition at Kochi from FY20, PLNGs fair value
wouldrisebyRs2530/share.
PLNGimpliedDCFbasedSOTP
Dahejterminalsfairvalue(Rs/sh)
Kochiterminalsfairvalueat4%utilisation(Rs/sh)
PLNGscurrentfairvalue(Rs/sh)
Kochiterminalsfairvalueat1mmtpa(20%util)(Rs/sh)
PLNGsfairvalueat20%Kochiutilisation(Rs/sh)
PLNGsfairvalueat17.5mmtpaDahejvolumes(Rs/sh)
300
(70)
230
(50)
250
260
Kochiterminalvolumerampupiscrucialfornextlegofreratingandthiswillneedto
bepursuedactivelyassouthIndiawouldsee23terminalsgettingcommissionedat
Kakinada and Ennore by FY20. While we remain positive on Dahej, now the ball is
firmlyinKochiscourt.
On a sharp volume jump from 10.3mmtpa in FY15 to 15.6mmtpa in FY18, implying
15% volume CAGR, coupled with 5% escalation in regas charges in Dahej from
Rs39.1/mmbtu in FY15 to Rs45.3/mmbtu, we estimate PLNGs adjusted PAT will
recorda31%CAGRinFY1518toRs15.4bn(Rs20.6EPS).Consequently,weestimate
averageROEtoimproveto20%byFY18from17%inFY15.
PLNGsEBITDAandPAT
PLNGsROEandROCE
40
EBITDA
Adj.PAT
35.5
32.8
35
Rsbn
25%
25
18.9
18.3
15.4
14.4
11.5
10
21.4
20.6
19.4
15.0
15
30%
28.6
30
20
35%
7.1
6.9
10.6
8.7
ROE
ROCE
29%
23%
20%
15%
14%
15%
17%
12%
20%
18%
21%21% 20%22%
16%
16%
14%
14%
10%
5%
5
0
0%
FY13
FY14
FY13
FY14
FY15
We estimate Dahej terminal will operate at 100% capacity in FY18 and 105%
thereafterandKochiat12%,whichwouldgraduallyriseandpeakat20%byFY20
(1mmtpavolumes).Wedonotassumeanymarketingmarginsonspotvolumes.
InKochi,weescalateregastariffsby5%uptoFY2021toRs85/mmbtudueto
low capacity utilisation. Though it may seem high, the impact on valuations
assumingflattariffatcurrentlevelofRs69/mmbtuisRs7/share.WeraiseDahej
tariffuptoFY2021toRs50/mmbtu.
We do not incorporate the 5mmtpa Rs 47bn Gangavaram terminal, as the
companyisstillstudyingthis.LookingattheFY20landscapewith23terminals
plannedalongtheeastcoast,Gangavarammaynotseemtooattractive.Wehave
alsonotbuiltinPhaseIV17.5mmtpaexpansion,whichhasavaluationupsideof
Rs8/share.
Our EBITDA CAGR is 26% in FY1518 to Rs 28.6bn, though gains below the
operatinglinewouldpushnetincomegrowthhigher.
PLNGsleverage
PLNGscapex
NetDebt(Rs.bn)
20
17.7
20.3
Debt:Equity(x) RHS
12
Capex(Rs.bn)
0.80
22.9
16.3
10
0.70
13.3
0.60
10
4.4
0.50
8
mmt
30
0.40
0.30
10
8.4
6
10.7
4
8.4
8.8
8.3
9.2
0.20
2
20
0.10
23.5
30
FY13
FY14
0.00
1.5
0
FY13
FY14
FY15
0.9
0.4
We estimate capex to come down to just Rs 400mn by FY20 (from ~Rs

11bncurrently) as the capex cycle ends. Consequently, the company would
become net cash positive by FY19 against a net debt of Rs23bn in FY15. Gross
debt:equityratiowouldfallto0.24xbyFY20from0.47asonFY15end.
WeestimatedepreciationtoreachRs4.2bnbyFY18andinterestatRs3.4bn.We
assumeataxrateof33%.
Rsmn
DahejVolumes(mmt)
DahejTariff(Rs/mmbtu)
DahejRegasIncome
KochiVolumes(mmt)
KochiTariff(Rs/mmbtu)
KochiRegasIncome
TotalRegasIncome
MarketingIncome
Int.Cons/OtherAdj.
GrossMargin
OPEX/mmbtu(Rs)
TotalExpenditure
EBITDA
GrossBlock
Depreciation
DepreciationRate
Debt
Interest
InterestRate
OtherIncome
PBT
TaxRate
Tax
PAT
EPS(Rs)
FY13
10.3
35.5
18,581
18,581
6,896
(2,922)
22,555
6.1
3,189
19,366
35,796
1,866
5%
30,342
1,184
4%
887
17,203
33%
5,710
11,493
15.3
FY14
9.6
37.2
18,197
0.1
63.0
282
18,479
3,339
(2,836)
18,981
8.1
3,996
14,985
77,946
3,081
4%
32,669
2,196
7%
838
10,545
32%
3,426
7,119
9.5
FY15
10.2
39.1
20,356
0.1
65.9
355
20,711
1,371
(3,182)
18,901
8.6
4,511
14,390
87,869
3,154
4%
26,541
2,935
11%
1,548
9,849
10%
1,024
8,825
11.8
FY16E
11.6
41.0
24,281
0.2
69.2
692
24,973
358
(2,309)
23,022
7.9
4,765
18,257
88,939
3,297
4%
34,031
2,434
7%
1,578
14,104
33%
4,654
9,450
12.6
FY17E
12.0
43.1
26,375
0.4
72.7
1,482
27,857
(2,298)
25,558
7.9
4,993
20,565
1,09,978
3,710
3%
40,471
2,632
7%
1,646
15,869
33%
5,237
10,632
14.2
FY18E
15.0
45.3
34,617
0.6
76.3
2,334
36,951
(2,373)
34,578
7.6
6,027
28,551
1,15,462
4,204
4%
36,521
3,388
9%
2,086
23,045
33%
7,605
15,440
20.6
FY19E
15.8
47.5
38,165
0.8
80.1
3,268
41,433
(2,382)
39,051
7.4
6,251
32,801
1,16,805
4,332
4%
32,151
2,884
9%
2,564
28,149
33%
9,289
18,860
25.1
FY20E
15.8
49.9
40,073
1.0
84.1
4,289
44,363
(2,393)
41,969
7.6
6,485
35,485
1,17,588
4,371
4%
27,431
2,413
9%
3,257
31,957
33%
10,546
21,411
28.5
Valuation
WevaluePLNGonaDCFmethodology.
Weassumeariskfreerateof8.5%andpremiumof5.5%.
Weassumea0.8xbetaduetoutilitynatureofbusinesswithfurtherderiskingby
FY18.
Ourcostofdebtis10%andbasedona30:70targetdebtequityratio,wearrive
ataWACCof11.5%.
Weassumeaterminalgrowthof0%.Basedontheassumptions,wearriveata
fairvalueofRs250/sh.
DCFAssumptions
RiskFreeRate
RiskPremium
Beta
CostOfEquity
CostOfDebt
PostTaxCostOfDebt
WACC
TerminalGrowthRate
8.5%
5.5%
0.8
12.9%
10.0%
6.7%
30.0%
11.5%
0.0%
DCFValuation(FY18E)
NPVOfFCF
TerminalValue
PVOfTV
TotalValue
Less:NetDebt(FY17EY/E)
EquityValue
No.OfSharesO/S(mn)
TargetPrice(Rs)
Rsmn
1,31,785
2,03,977
68,870
2,00,655
13,337
1,87,318
750
250
Our target price implies 12x PE multiple on FY18 earnings, which seems fair for a
utility. While we remain positive on the Dahej terminal story, recent stock
outperformancepricesinmostpositivesandfuturereratingwoulddependonKochi
volume ramp up visibility, which is currently low. Due to 7% upside, we have a
Neutralratingonthestock.
PLNG'sPEbasedvaluation
Rs
EPS
TargetMultiple(x)
DCFTargetPrice
FY15
11.8
FY16E
12.6
FY17E
14.2
FY18E
20.6
12.1
250
Keyrisktoourcall
Delayinprojectexecutionpertainingtoexpansions,downstreampipelines
Regulatoryriskonregastariffsowingtocontrolandreduction,50%cutonpower
sectorvolumes
Highlyadversepetroleumandgaspricingaffectingoveralldemandeconomics
Capitalallocationrisksinriskyassets
Operationalrisks
CompanyBackground
PetronetLNGLtd(PLNG/PLL)wasincorporatedin1998toinitiateLNGimporting
businessinIndia.Thecompanystartedoperationsin2004byestablishingIndias
first LNG import and regasification terminal of 5mmtpa (255tbtu) capacity at
DahejportinGujarat.
PLNGispromotedbyfourstatepromotedentitiesONGC,IOCL,GAILandBPCL
eachhaving12.5%stake.Promotershareholdingis50%,makingPLNGaprivate
company.
TheSecretary,MOPNG,isthechairmanofthecompanywhileitsMDisgenerally
selected from its promoter group. Francebased gas and electricity utility, GDF
Suezholds10%stakeasastrategicpartner.
PLNGsbusinessmodelistoimportLNGthroughtankerstoitsunloadingfacilities
(jetty),storeitasperneed,regasifyitandtransferittoofftakersandcustomers
whomayfurthersellorconsume.Forthat,thecompanychargesaregastariff.
Thisarrangementismostlyforitsmarqueelongtermandthirdpartycontracts
where the company is a pure utility without any commodity price or currency
risks.
However, it also sells a portion of spot LNG as a merchant terminal where it
realisesadditionalmarketingmargins,dependingonmarketscenario.
LNGvaluechain
Shipping
LNGliquefier
&exporter
LNG
Importer&
Regasifier
Binding
agreement
RLNG
offtaker &
marketer
Binding
agreement
PLNG established its second 5mmtpa terminal in Kochi Port, Kerala, in 2013,
though due to lack of proper pipeline connectivity,it lacks market access
resultinginextremelylow4%utilisation.
Over the years, its Dahej terminal has expanded to 10mmtpa capacity and is
underfurtherexpansionto15mmtpabyCY16end.
PLNGisalsolookingatsettingupathirdterminalinGangavaramPortinAndhra
Pradesh.
PLNGs total revenue in FY15 was Rs 395.0bn while reported PAT stood at Rs
8.8bn.ThecompanyhadtotalassetsofRs111.2bnasonMarch2015endwhile
currentmarketcapstandsatRs175.7bn.DividendyieldinFY15was1%.
Management
PLNG is currently headed by Mr. Prabhat Singh, MD who was previously Director
Marketing at GAIL. Mr. R. K Garg is DirectorFinance and Mr. Rajender Singh,
DirectorTechnical.Mr.K.D.Tripathi,IAS,(SecretaryMOPNG)isChairman.Nominee
directorsincludefrompromotergroupandonedirectoreachisfromGDFandGSPC.
Threeindependentdirectorsarethere.
Pipelines
Finalgas
customers
Mayormaynot
bebinding
Financials
IncomeStatement
Y/EMar,Rsmn
Netsales
Growth,%
Totalincome
Rawmaterialexpenses
Employeeexpenses
EBITDA(Core)
Growth,%
Margin,%
Depreciation
EBIT
Growth,%
Margin,%
Interestpaid
Pretaxprofit
Taxprovided
Profitaftertax
NetProfit
Growth,%
NetProfit(adjusted)
Unadj.shares(m)
Wtdavgshares(m)
CashFlow
395,010 301,037 249,529 265,498
5
24
17
6
395,010 301,037 249,529 265,498
376,109 278,015 223,970 230,920
571
628
691
864
3,940 4,137 4,302 5,163
14,390 18,257 20,565 28,551
(4.0)
26.9
12.6
38.8
3.6
6.1
8.2
10.8
3,154 3,297 3,710 4,204
11,236 14,960 16,855 24,347
(5.6)
33.1
12.7
44.4
2.8
5.0
6.8
9.2
2,935 2,434 2,632 3,388
1,548 1,578 1,646
2,086
9,849 14,104 15,869 23,045
1,024 4,654 5,237 7,605
8,825 9,450 10,632 15,440
8,825 9,450 10,632 15,440
24.0
7.1
12.5
45.2
8,825 9,450 10,632 15,440
750
750
750
750
750
750
750
750
BalanceSheet
Y/EMar,Rsmn
Cash&bank
Debtors
Inventory
Loans&advances
Othercurrentassets
Totalcurrentassets
Investments
Grossfixedassets
Less:Depreciation
Add:CapitalWIP
Netfixedassets
Totalassets
FY15
3,641
13,428
8,826
7,493
4
33,392
900
87,869
18,443
7,469
76,895
111,187
FY16e
17,691
10,233
6,727
7,644
4
42,300
900
88,939
21,741
17,099
84,297
127,497
FY17e FY18e
27,134 32,122
8,482
9,025
6,691
7,119
7,825
8,043
5
6
50,137 56,315
900
900
109,978 115,462
25,450 29,655
5,260
1,276
89,788 87,083
140,825 144,298
Currentliabilities
Provisions
Totalliabilities
Paidupcapital
Reserves&surplus
Shareholdersequity
9,553
1,936
11,489
42,811
54,301
7,500
49,386
56,886
111,187
8,590
1,976
10,566
52,938
63,503
7,500
56,494
63,994
127,497
8,004
7,881
2,017
2,059
10,021
9,939
59,032 51,293
69,053 61,232
7,500
7,500
64,272 75,566
71,772 83,066
140,825 144,298
Y/EMar,Rsmn
Pretaxprofit
Depreciation
Chginworkingcapital
Totaltaxpaid
Capitalexpenditure
Chgininvestments
Freecashflow
Debtraised/(repaid)
Dividend(incl.tax)
Netchgincash
ValuationRatios
FY15 FY16e
PerSharedata
EPS(INR)
Growth,%
BookNAV/share(INR)
FDEPS(INR)
CEPS(INR)
CFPS(INR)
DPS(INR)
Returnratios
Returnonassets(%)
Returnonequity(%)
Turnoverratios
Assetturnover(x)
Sales/NetFA(x)
Receivabledays
Inventorydays
Payabledays
Workingcapitaldays
Liquidityratios
Currentratio(x)
Quickratio(x)
Interestcover(x)
Dividendcover(x)
Totaldebt/Equity(%)
Netdebt/Equity(%)
Valuation
PER(x)
PEG(x)yoygrowth
Price/Book(x)
Yield(%)
EV/Netsales(x)
EV/EBITDA(x)
EV/EBIT(x)

9,849 14,104 15,869 23,045
3,154 3,297 3,710 4,204
5,579 7,181 1,022 4,772
716 5,018 5,582 7,933
8,140 19,564 15,018 14,544
8,599 10,700 9,200 1,500
499
0
0
0
8,100 10,700 9,200 1,500
40 8,864 5,818 13,044
6,128 7,490 6,440 3,950
2,598 2,304 2,816 4,106
8,726 5,186 3,624 8,056
8,686 14,050 9,442 4,988
FY17e
FY18e
11.8
24.0
75.8
11.8
16.0
8.8
2.0
12.6
7.1
85.3
12.6
17.0
24.0
2.7
14.2
12.5
95.7
14.2
19.1
17.8
3.3
20.6
45.2
110.8
20.6
26.2
16.6
4.7
9.3
15.5
11.2
9.2
14.8
10.2
9.2
14.8
9.9
12.3
18.6
13.2
4.8
3.4
5.3
0.0
12.4
8.2
3.1
16.9
2.9
2.1
3.8
5.9
46.7
40.3
19.9
0.8
3.1
0.9
0.5
13.8
17.7
3.4
2.5
3.7
0.0
12.4
8.2
3.1
17.1
2.8
1.9
2.9
0.1
12.4
9.8
3.0
19.1
2.8
1.9
3.0
0.1
12.4
9.8
3.0
19.7
4.0
3.4
6.1
4.7
53.2
25.5
5.0
4.4
6.4
4.4
56.4
18.6
5.7
5.0
7.2
4.4
44.0
5.3
18.6
2.6
2.7
1.1
0.6
10.5
12.8
16.5
1.3
2.4
1.4
0.8
9.2
11.2
11.4
0.3
2.1
2.0
0.7
6.3
7.4
GujaratGasLtd(GUJGAIN)
Cautiousduetoheavyindustrialexposure
2December2015
INDIA|OIL&GAS|InitiatingCoverage
GGL has a heavy 70% exposure to Gujarats industrial segment where coal and grid
powerwillremainstrongcontenders,evenwithoiltogasparity.
~40%ofGGLsgassaleistotheMorbiceramiccluster,whichclaimsthatcurrentgasis
uncompetitiveandhasinstalledcheapercoalgasifiersthatcouldgetapproval.
Expected Qatar LNG price cut creates room for IPNG price reduction, but difficult to
achievebothvolumesandmargingrowthduetocompetitionfromalternatefuels.
We build in optimistic assumptions to test stresscase valuations. Even at 710%
volumegrowthandmarginexpansion,stockseemsfairlyvalued.
OilpricecrashdisfavoursindustrialPNGeconomics
WearecautiousonGGLduetoits70%volumeexposuretotheindustrialsegment.GGLs
FY15 average volumes of 6.5mmscmd declined to 5.6mmscmd in Q2FY16 while EBITDA
marginalsoweakenedtoRs2.6/scmasfurnaceoil(FO)remained30%+cheaperthanRLNG.
Webuild710%yoyvolumegrowthinFY1720,assuminganoptimisticstresscasescenario
with oil prices recovering to US$ 60/bbl. However, in Gujarat, cheap coal and grid power
havealsoemergedasstrongcontenderstogas.AlthoughCNGsegmentislikelytogrow,at
~16%volumeshare,itisnotsufficienttodriveoverallvolumes.
Morbiclustersgasifierplansareavolumerisks
GGL supplies about 2.3mmscmd of IPNG to the Morbi ceramics cluster where customers
haveclaimedthatGGLsrateistooexpensiveandinstalledcoalgasifierstolowerfuelcosts
to ~Rs 25/scm. ~250 plants have signed new agreements with GGL (channel checks
revealed)basedonaminimumofftakeatRs12/scmlowergasprice(thanGGLscurrent
rate of ~Rs 30/scm); others are seeking a rate cut to Rs 25/scm. Only 30 gasifiers have
receivedpermissionssofar,butmorearelikelytogetapproval.Grossimpactissignificantat
0.8mmscmd (14% of total volume). GGL has maintained that fuel cost from approved
gasifierswouldbe~Rs27/scm,hencedemandforpricecutsisunreasonable.However,with
likelyQatarLNGpricecut,webelieveGGLwillbeabletoreduceIPNGpricestoRs26/scm.
Volumeversusmargintradeoffabigstrategychallenge
DespitetheQatarpositive,wefinditdifficulttoassumebothvolumesandmarginsturning
robust at the same time. Erstwhile Gujarat Gas Co. saw ~40% volume decline in FY1115
whenittriedtosalvagemarginsbyfocusingonliquidfuelcustomers.GSPCGashadweak
margins.WithcautiousMorbioutlookandcompetitionfromcoalandgridpower,weexpect
volumegrowthonlyonattractivepricing,whichwilllimitmarginupsides.WeexpectFY16
salesat6mmscmd,down7%yoy,butwebuildoptimistic710%yoyvolumegrowthinFY17
20andEBITDAmarginofRs3.94.6/scmtostresstestourvaluations.
EarningsgrowthseenduetoFY16baseeffect;DCFimpliesovervaluation
Wesee31%earningsCAGRinFY1618becauseofbaseeffectasweexpectFY16earningsto
decline40%yoytoRs2.7bn.Wewouldnotfocusonearningsgrowthforthisstockitis
trading at a premium (20x FY17) to peers (15x). Its earnings runrate is currently 4550%
below earlier consensus estimates. Instead, we test its intrinsic value using DCF, which
wouldcaptureitsaggressivecapexofRs57bnoverthenext45yearsforexpandingwithin
Gujarat(crucialtostronggrowth).
InitiatecoveragewithaNeutralratingandpricetargetpriceofRs530
We initiate coverage on GGL with a Neutral rating and DCFbased target price of Rs 530,
which implies a 16x multiple to our FY18E EPS. While FY16 would mark bottom earnings,
recoverywouldbebumpyanddependentongastooil/gridpower/coaleconomics.
NEUTRAL
CMPRS575
TARGETRS530(8%)
COMPANYDATA
O/SSHARES(MN):
MARKETCAP(RSBN):
MARKETCAP(USDBN):
52WKHI/LO(RS):
138
79
1.2
680/96
FII/NRI:
FI/MF:
NONPRO:
PUBLIC:
GOVT:
Jun15
37.7
23.5
22.5
2.2
15.3
Mar15
37.7
22.7
22.8
2.4
15.7
Dec14
37.7
22.1
23.4
3.6
15.5
PRICEPERFORMANCE,%
ABS
RELTOBSE
1MTH
3.1
5.0
3MTH
NA
NA
1YR
NA
NA
PRICEVS.SENSEX
120
90
60
30
Sep/15 Oct/15 Oct/15 Nov/15
GujGas
BSESensex
KEYFINANCIALS
Rsmn
NetSales
EBIDTA
NetProfit
EPS,Rs
PER,x
EV/EBIDTA,x
P/BV,x
ROE,%
Debt/Equity(%)
FY16E
65,271
8,473
2,679
19.5
29.6
11.8
3.6
12.1
105.2
FY17E
65,555
9,935
3,855
28.0
20.5
10.1
3.1
15.2
89.2
FY18E
72,875
11,346
4,608
33.5
17.2
8.9
2.7
15.9
77.5
GUJARATGASLTD INITIATINGCOVERGE
InvestmentThesis
Dueto70%+exposuretoindustrialsectors,GujaratGasisinatoughsituationwhere
ithastochooseeithermarginorvolume.Thestockisalreadytradingatafairvalue,
even after building in robust volume growth and margin recovery. Potential long
termdemand fromGujaratisonlypossibleafteryearsofheavycapex.
OilpricecrashdoesnotfavourindustrialPNGeconomics
We have a cautious approach to GGL due to its 70% volume exposure to the
industrialsegment,whichcompriseofsmallandmediumindustries.Theseindustries
intheceramic,textile,chemicals,pharmaceuticals,glassandfoodprocessingspace
thefirsttwoarepricesensitiveandelasticinswitchingtocheaperalternativefuels
likefurnaceoil(FO)andcoal,bothofwhicharecurrentlyavailableatdiscounttospot
LNGprices.Already,manyofitstextilecustomershaveswitchedtocheapercoaland
lignite, evident in erstwhile Gujarat Gas Compnays volume decline due to exits by
directfiringcustomers.
Liquidfuelreplacement customers were premium users earlier due to favourable

gastoliquideconomics,whichhelpederstwhileGujaratGastorealisehighermargins
thereby offsetting volume decline. However, with Gujarat FO prices effectively 30%
cheaperthanretailIPNGof~Rs33/scm(posttax,notadjustingQatarLNGpricecuts),
demandremainsweak.Besides,evenifoilpricesrecovertoUS$60/bbl,competition
fromcoalandgridpowerwillremain.
InGujarat,gasbasedCHPplantsarecurrentlyunattractive,asthecostofpowerfrom
them is almost 20% more than grid power cost of (average) Rs 7/kwh, even after
adjusting for Qatar termLNG pricing benefit. CNG segment is likely to be a better
story considering new triggers such as CNG Marketing Guidelines, new areas, and
favourableeconomicscoupledwithGujaratsrelativeunderpenetration,whichmay
resultinpolicymandates(likeDelhi)abouttheusageofCNG.However,witha16%
shareinGGLsvolumes,itwouldtakeyearsforCNGtooffsetslowdowninitsIPNG
segment.
Fueloilcurrentlytradesata32%discounttoindustrialPNGinGujarat
FurnaceOil
FORSP(Rs/kg)
FOPrice/kg(Rs)
CalorificValue(kcal/kg)
FOPrice/mncal.(Rs)
Gujarat
24,900
24.9
10,200
24.4
IndustrialPNG
IPNGRSP(Rs/scm)
CalorificValue(kcal/scm)
IPNGPrice/mncal.(Rs)
FODisc.ToIPNG
Gujarat
33.9
9,500
35.7
32%
CHPtradesata19%premiumtogridpowerinGujarat
CalorificValue
StationHeatRate
GasPriceinGujarat(Rs/scm)
ElectricityProduced(kwh)from1scmgas
VariableCostofPower(Rs/kwh)
FixedCostofPower(Rs/kwh)
TotalCost(Rs/kwh)
MerchantPowerRate(Rs/kwh)
Premium
kcal/scm
kcal/kwh
9,500
2,500
26.0
3.8
6.8
1.5
8.3
7.0
19%
GGLssalesvolumemixleansheavilyonIPNG
CNG,16%
DPNG,9%
CPNG,5%
IPNG,70%
Morbiceramicclustersgasifierplansposevolumerisks
Morbi had been a material risk to GGLs volume outlook, though the situation has
improved after reports that the RasGas negotiation breakthrough would result in
lowerQatarLNGpricesof~US$7/mmbtu.Webelieveriskoflowervolumeofftake
hasreduced,butgrowthindemandwouldstillbetough,consideringMorbiceramic
playersarefindingitdifficulttocompetewithinternationalplayersandmanyplants
arefacingshutdowns.
Large exposure to Morbis ceramic industry: GGL sells ~2.3mmscmd of IPNG to

the Morbi ceramic cluster (300km east of Ahmadabad, gateway to the Kutch
region), which comprises of 400500 large and small ceramicproducing plants,
whichconsume5,000scmdofgas.
Ceramicindustryinstalledgasifiersduetohighgascost:Ceramicindustrieshave
founditdifficulttoabsorbhighpricedIPNG,whichwasRs40/scm+inearlyCY14.
Althoughithasfallento~Rs33/scm(posttax)now,theseusersstillconsideritto
be pricey. Consequently, in the last couple of years, these ceramic players
installedcoalgasifiersthatrunoncoal/lignitesuppliedfromKutch,wherethegas
costwouldbejustRs16/scm.
Ceramic customers demand IPNG at Rs 25/scm: Assuming a 50% cut in GGLs

currentIPNGusagebyceramicplayers(theywouldnotfullycutgassupplyasthey
wouldkeepitasafallbackoption),theirblendedgascostwouldcomedownto
~Rs25/scm.TheseceramicplayershaveindicatedthatifGGLcutsitsIPNGprices
toRs25/scm,theywouldnotbeinterestedinpursuingtheirgasifierplanfurther
(~300plantsalreadyhavegasifiers).WithQatartermLNGpriceslikelytobereset
atUS$7/mmbtu,webelieveGGLwillbeabletoreduceIPNGpricestoRs26/scm,
whichreducesofftakerisks.
GGLsmanagementmaintainsthatgasifiersarenotathreat:GGLhassaidthat
fuelcostsfromgenericgasifiersare~Rs23/scm;legallyapprovedzerodischarge
gasifiers would require another Rs 4/scm taking the cost to Rs 27/scm, which is
only Rs 2/scm cheaper than its current IPNG price of Rs 29/scm (VAT credit
adjustedprice)itbelievesdemandforRs25/scmgaspriceisunsubstantiated.
50%customerscouldhavebeendefectors:Ourchannelchecksrevealthat~250
of its ceramic customers had signed new agreements with GGL based on 80%
minimumquantityofftakeatRs12/scmlowerthanprevailinggasprices.Thishas
mitigatedtherisk,but50%ofitsMorbicustomersstillposedaconcern.
Moregasifiersarereceivingapproval:Theceramiccompaniesgasifierswerenot
receivingcentral and state Pollution Control Board (PCB)s approvals, even after
modifications as per Gujarat High Court and Surpeme Courtsorders but 30+
plantshavereceivedpermissionrecentlyandmorecouldfollow.
IPNGqualityishoweverbetter:Webelievethequalityofnaturalgasfedplantsis
betterthancoalones,andreputedceramicmanufacturersprefernaturalgasit
ispredominantlythelowerqualitytileproducersthatareseekinglowerprices.
VolumesatriskintheMorbiceramiccluster:0.8mmscmdoftotal2.3mmscmd
TotalsalestoMorbicluster
Volumesunder80%minimumquantityagreement
Impactof20%cutunderthisagreement
Volumesundergasifierrisk
Impactof50%cutinconsumptionduetogasifiers
Totalvolumerisk
2.3mmscmd
1.1mmscmd
0.2mmscmd
1.1mmscmd
0.6mmscmd
0.8mmscmd
Source:ChannelChecks,PhillipCapitalIndiaResearch
Out of ~2.3mmscmd volumes to Morbi, GGL has derisked around 50%

(~1.1mmscmd)byusingtheminimum80%offtakeat~Rs28/scm(posttax).A20%
cut due to 80% minimum offtake here would mean ~0.23mmsmcd of volumes.
However,if200300gasifierscomeonline,itwouldmeana50%cutintheremaining
~1.1mmscmdvolumeanimpactof~0.55mmscmd.Therefore,thecombinedimpact
wouldbe~0.8mmscmd,whichissignificantat14%ofGGLscurrentsales.GGLwould
needtocutpricesfromcurrentRs33/scm(posttax),thoughwithlowerQatarterm
LNGprices,marginsarelikelytoremainstable.
Volumeversusmargintradeoffabigstrategychallenge
Despite the Qatar positive, we find it difficult to assume both volumes and
marginsgrowingrobustlyasevenwithfavorablegastooileconomics,threatfrom
cheapercoalandgridpowerwouldcontinue.
ErstwhileGujaratGassawalmost40%declineinvolumesinFY1115whenittried
to salvage margins. Gujarat Gas sacrificed directfiring customers, which were
shifting towards coal and grid power, and shifted its focus to liquidfuel
replacementcustomerswhowerewillingtopayhigherLNGbasedIPNGprices,as
oilpricesremainedaboveUS$100/bbl.
On the other hand, GSPC Gas sacrificed margins for volumes its volumes
remained flat in FY1113 at 3.9mmscmd while EBITDA margins declined to Rs
1.5/scm from Rs 1.8/scm. FY14 was an extraordinary year due to the trouble in
Morbiofftake,whichresultedinanetlossofRs1bn.
For GSPC Gas, FY15 saw a sharp recovery in volume to 4.4mmscmd while
EBITDA/scmalsojumpedtoRs4.3duetofavourablejudgmentontheMorbiissue
thisledtoarecoveryofthepreviousyearslostsalesatsteadyprices.
However, FY15 was also an exceptional year in the first half GSPC Gas H2
margins took a hit because of crash in global oil and gas prices. Gujarat Gas
Companyalsosawa16%qoqfallinEBITDA/scminQ4FY15.
ErstwhileGujaratGasvolumesandmargins
Volumes(mmscmd)
ErstwhileGSPCGasvolumesandmargins
EBITDA/scm(Rs.) RHS
4.0
3.5
Volumes(mmscmd)
7.0
3.4
3.4
5.7
3.1
6.0
5.5
3.0
2.6
2.5
2.1
2.0
3.2
2.6
1.0
0.5
FY13
4.0
3.5
4.0
3.0
3.0
2.0
2.0
1.5
0.0
0.0
FY12
4.4
4.5
5.0
1.0
FY11
5.0
3.8
3.9
3.8
FY14
4.5
4.0
3.0
2.5
2.0
1.9
1.8
1.5
1.5
1.0
1.0
0.3
0.5
0.5
0.0
FY15
4.3
3.5
3.4
2.5
3.4
1.5
EBITDA/scm(Rs.) RHS
0.0
FY11
FY12
FY13
FY14
FY15
Assuming7%volumeCAGRandsteadymarginexpansioninFY1620
Volumes(mmscmd)
10
EBITDA/scm(Rs.) RHS
4.4
3.9
4.2
4.4
4.6
5.0
4.5
4.0
3.5
3.5
6
2.4
2.3
2.3
3.0
2.3
2.5
2.0
1.5
2
1.0
7.2
7.2
7.0
6.0
6.5
6.0
6.5
7.0
7.6
8.4
FY11P
FY12P
FY13P
FY14
FY15
FY16E
FY17E
FY18E
FY19E
FY20E
0.5
0.0
AtcurrentoilpriceofUS$50/bbl,weexpectFY16gassalesat6mmscmd,down7%
yoy.Nevertheless,webuild710%yoyvolumegrowthinFY1720withFY20volumes
at close to 8.5mmscmd, 50% above Q2 volumes of 5.6mmscmd to stress test our
assumptions.WealsoexpectasteadyriseinEBITDAmargintooverRs4.5/scmby
FY20 from Rs 3.5/scm in FY16 based on higher oil price of US$ 60/bbl providing
roomforsomeretailpriceledmarginexpansion.
WebuildincrudepriceofUS$60/bblbyFY17thiswouldmeanpositiveimpacton
IPNGdemand.However,forGGL,otherfactorssuchasavailabilityofgridpower,and
cheapcoalpriceswouldalsohaveabearing.GGLsmanagementhadindicatedthatit
istargetingvolumegrowthmore.AgainstanEBITDA/scmofRs2.6inQ2FY16,weare
buildingRs3.5/scmforFY16asloweroilpriceswouldhaveafavourableimpacton
the oil linked contracts for GGL which are priced on a trailing average basis
(6months). We dot change our margin assumption even with 40% decline in Qatar
LNGpricesaswebelieveitwouldbepassedon.
Earnings growth seen due to FY16 base effect, DCF implies over
valuation
Weexpect31%earningsCAGRinFY1618withFY17/18earningsgrowthat44%/20%
yoy we base our earnings recovery assumption on an oil price of US$60/bbl by
FY17, which would lead to rationalisation in the LNGfed IPNG industry. FY16 will
createalowbase(weexpectearningstofall40%inFY16).
Wedonotthinkearningsgrowthisthecorrectwaytovaluethisstock.GGLtradesat
20xFY17earningsvs.Peers15xanditsearningsrunrateiscurrently4550%below
whattheconsensusexpectedearlier.WeprefertheDCFmethodforGGL.
Ourvolume,margin,andearningsestimatesallfactoracontinuousrecovery,butwe
believe it is too early to price in adverse FY16 numbers GGL has planned an
aggressive capex of Rs 58bn over the next 45 years for expanding within Gujarat,
which is crucial for achieving doubledigit growth. Our DCF valuation captures this
andtherefore,wefocusontheintrinsicvalueofthestockwhereitisseenovervalued
atcurrentlevels.
IncorporatinganoptimisticvolumegrowthandmarginscenariototestDCF
mmscmd
TotalVolumes
Growth
BaseIPNG
DeltaIPNG
TotalIPNG
Growth
CPNG
Growth
DPNG
Growth
CNG
Growth
FY14
6.0
4.0
0.4
4.4
0.3
0.5
0.8
FY15
6.5
9%
4.0
0.8
4.8
10%
0.3
2%
0.5
7%
0.9
7%
FY16E
6.0
7%
4.0
0.2
4.2
12%
0.3
1%
0.5
7%
1.0
10%
FY17E
6.5
7%
4.1
0.4
4.5
7%
0.3
3%
0.6
7%
1.1
10%
FY18E
7.0
8%
4.2
0.6
4.8
8%
0.3
3%
0.6
7%
1.2
10%
FY19E
7.6
9%
4.4
0.9
5.3
10%
0.3
3%
0.6
5%
1.3
10%
FY20E
8.4
10%
4.5
1.4
5.9
11%
0.3
3%
0.7
5%
1.4
10%
WeestimateavolumeCAGRof2%(FY16volumetofall7%yoy;7/8%growthin
FY17/18)duringFY1518E.
Negative 2% CAGR in EBITDA/scm (including other operating income); FY16 to
seedeclinefollowedbyrecoveryinFY17/18.
AdjustedPATCAGRof1%toRs4.6bn(Rs33.5/share).
EBITDACAGRof1%inFY1518.FY16EEBITDAtofallby23%yoy.
Average ROE to improve to 17% by FY18 from 13% in FY16 but would remain
lowerthanFY15s24%.
Volume CAGR at 5% in FY1520 due to new areas and Gujarats industrial
intensity.However,webelieveourvolumeassumptionismorethanreasonable
and though we build in an oil price of US$ 60/bbl in FY17, still reaching near
doubledigit yoy, volume growth would be challenging considering competition
fromcoal.Ourintentionistotakeanoptimisticvolumegrowthtostresstestour
DCFvaluationmodel.
CoregrossmarginFY16Rs5.5/scm,FY20atRs6.3/scm(vs.Rs6.1/scminFY15).
CleanEBITDA/scmtogrowtoRs4.6/scmbyFY20fromRs3.5/scminFY16.
GGLsEBITDAandPAT
16
EBITDA
GGLsROEandROCE
12.9
14
9.9
10
ROE
25%
11.3
11.1
12
Rs.bn
30%
14.8
Adj.PAT
20%
8.5
6.7
5.7
4.4
3.9
4.6
5.5
13%
10%
12%
18%
17%
13%
14%
19%
15%
3%
0%
5%
2
FY14
16%
8%
5%
0.3
FY13
15%
15%
10%
2.7
ROCE
24%
FY15
0%
1%
FY13
FY14
FY15
GGLsleverage
GGLscapex
NetDebt(Rs.bn)
30.0
Debt:Equity(x) RHS
10.0
Capex(Rs.bn)
4.4
8.0
25.0
8.6
8.0
4
7.4
24.1
20.0
20.5
15.0
20.7
21.2
21.4
21.4
1.6
2
1.1
0.9
0.8
5.0
0.7
0.6
4.0
2.0
0.0
0.0
3.4
3.5
FY14
FY15
0.0
0.0
FY13
6.3
5.7
17.9
2.0
10.0
6.0
FY14
FY13
BookcapexshouldrisetoRs89bnbyFY19from~Rs56bninFY16duetoentry
innewareasKutch(West),Jamnagar,Bhavnagar,Thane(Palghar)andDadra&
NagarHaveli.WeassumeRs5.7bncapexinFY16,whichisalowerrunratethan
themanagementsearlierassumptionofRs30bnoverthenextfouryears.
Netdebtwouldremainat~Rs21bnforthenext34duetoheavycapex.Debt
equitytoverygraduallykeepondeclining.
Weestimatedepreciationtoincreaseoncontinuingcapexwhileinterestexpense
couldpeakthisyearatRs2.8bn.Weassumeataxrateof33%.
Rsmn
Volumes(mmscmd)
Growth
GrossMargin(Rs/scm)
OPEX(Rs/scm)
CleanEBITDA/scm(Rs)
CleanEBITDA
OtherOperatingIncome
ReportedEBITDA
GrossBlock
Depreciation
DepreciationRate
Debt
Interest
InterestRate
OtherIncome
PBT
TaxRate
Tax
PAT
EPS(Rs)
FY13P
7.0
3.7
1.4
2.3
5,867
5,867
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
FY14
6.0
14%
4.2
1.9
2.3
5,014
727
5,741
47,550
2,826
5.9%
33,013
3,003
9.1%
1,011
922
69.2%
638
284
2.1
FY15 FY16E
6.5
6.0
9%
7%
6.1
5.5
1.8
2.0
4.4
3.5
10,354 7,752
707
721
11,062 8,473
50,114 55,486
2,377 2,534
4.7%
4.6%
32,257 23,257
3,332 2,776
10.3% 11.9%
1,062
835
6,414 3,999
30.8% 33.0%
1,979 1,320
4,436 2,679
32.2
19.5
FY17E
6.5
7%
5.9
1.9
3.9
9,199
736
9,935
62,147
2,823
4.5%
22,557
2,062
9.1%
703
5,753
33.0%
1,899
3,855
28.0
FY18E
7.0
8%
6.1
1.9
4.2
10,595
750
11,346
68,752
3,142
4.6%
22,457
1,969
8.8%
643
6,878
33.0%
2,270
4,608
33.5
FY19E
7.6
9%
6.2
1.8
4.4
12,134
765
12,899
75,506
3,462
4.6%
22,357
1,905
8.5%
627
8,160
33.0%
2,693
5,467
39.7
FY20E
8.4
10%
6.3
1.7
4.6
13,982
781
14,763
79,416
3,718
4.7%
22,257
1,896
8.5%
835
9,984
33.0%
3,295
6,689
48.6
Valuation
We value GGL on a DCF methodology. Our analysis is based on an 8% (optimistic)
volumegrowthinFY1620andgraduallyrisingmargin/scm.Weassume:
Ariskfreerateof8.5%andapremiumof5.5%.1xbeta(inlinewithmarket).
Ourcostofdebtis10%andbasedona30:70targetdebt:equityratio,wearrive
ataWACCof12.1%.
Weassumeaterminalgrowthof2%.
Based on our assumptions, we arrive at a FY17 fair value of Rs530/share. Our
targetpriceimplies16xPEonFY18EEPS,whichisrichcomparedtopeers.
DCF
DCFAssumptions
RiskFreeRate
RiskPremium
Beta
CostOfEquity
CostOfDebt
PostTaxCostOfDebt
WACC
TerminalGrowthRate
8.5%
5.5%
1.0
13.7%
10.0%
6.7%
30.0%
12.1%
2.0%
DCFValuation(FY18E)
NPVOfFCF
TerminalValue
PVOfTV
TotalValue
Less:NetDebt(FY17EY/E)
EquityValue
No.OfSharesO/S(mn)
TargetPrice(Rs)
Rsmn
44,500
1,55,585
49,632
94,132
21,215
72,916
138
530
GGL'sPEbasedvaluation
Rs
EPS
TargetMultiple(x)
DCFTargetPrice
FY15
32.2
FY16E
19.5
FY17E
28.0
FY18E
33.5
15.8
530
Keyriskstoourcall
Sharprecoveryinvolumesduetoimprovementindemandscenario
Margin expansion due to favourable liquidtogas pricing parity (recovery in oil
pricesvisavisgas)
PolicytriggerslikemandatoryCNGusageforpublictransportwithinthestate
LowergascostfromnegotiationofLNGcontracts
DutybenefitsinCNGandPNG
CompanyBackground
Gujarat Gas Ltd (GGL/GUJGA) was formed by the merger of two largest CGD
companiesinGujaratGujaratGasCoandGSPCGasinCY14/15.GujaratGas
was previously owned by BG Group who sold its entire stake to the Gujarat
governmentpromoted oil and gas entity GSPC. GSPC Gas was promoted by
GSPC.
Aftermerger,GGLispromotedbyGSPCanditsassociateswithpromotergroup
comprising of GSPC (28.4% stake), GSPL (25.8%), GSEG (0.2%), and Gujarat
government (6.5%) making total promoter state 61%. Other Gujaratbased
entities (GIDC, GACL and GSFC) hold close to 14% stake, implying that Gujarat
governmentstotalindirectholdingisalmost75%throughgovernmententities.
GGL(mergedentity)isthecountryslargestCGDcompany,selling~6.2mmscmd
of gas across 19 districts in Gujarat (610 cities, towns, and villages) and has
recentlywonbidsforThaneinMaharashtraandDadra&NagarHaveli.
GGLsbusinessmodelistosourcenaturalgas(fromdomesticproducersandR
LNGsuppliers)andsellsittocustomerseitherintheformofPNGorCNG.
As an infrastructure (network, compression facility) provider, GGLs value
additionincludesnetworktariffandcompressioncharges,whichisregulatedby
PNGRB,whileonthetradingsideofitsbusiness,itchargesadditionalmarketing
margin,whichiscompletelyfreeanddependsonretailpricingandmaterialcost.
Pricing is dependent on the competitive position of CNG vs. liquid fuels. GGLs
CPNG and IPNG gas sourcing profile consists of ~0.5mmscmd from PMT and
Cairnfields(80%PMT),0.9mmscmdRLNGfromQatarRasGas,2.2mmscmdfrom
midtermLNG(includingGSPCBG)andtheremaining1mmscmd+fromspot.
GGLcurrentlyhas1.03mnDPNGcustomers,11,580CPNGcustomers,and2,780
IPNG customers across Gujarat. It retails CNG through 236 stations catering to
155,000 vehicles every day. Its pipeline network, which includes steel and
medium density polyethylene (MDPE), is ~15,000km. It also has trunk gas
pipeline.InIPNG,GGLcompeteswithfuelslikecoal,FO,lightdieseloil,andLPG.
GGLstotalrevenueinFY15wasRs90.1bnwhilereportedPATwasRs4.4bn.The
companyhadtotalassetsofRs68.9bnasonMarch2015endandcurrentmarket
capstandsatRs79.1bn.DividendyieldinFY15was1%.
CNG is manufactured by compressing gas using high pressure, which is filled in

vehiclesasanautofuelthroughCNGoutlets.
PNGissoldtothreeprimarycustomergroupsnamelyindustrial(IPNG)comprisingof
small and medium industries (less than 50,000scmd consumption), commercial
(CPNG) comprising of hotels, restaurants, and other profit and nonprofit
establishments (hospitals, religious places) and domestic (DPNG) whichis
households.
GasforCNGandDPNGissuppliedfromdomesticsourcesaspercentralgovernment
order totalling 1.5mmscmd (APM 78%, PMT 22%) while IPNG and CPNG is serviced
using RLNG and some PMT gas as contracted earlier though on a declining mode.
Due to cheap domestic gas (US$46/mmbtu), pricing of DPNG and even CNG is
cheaper compared to CPNG and IPNG, which relies on pricier RLNG (US$7
10/mmbtu).
Management
GGLiscurrentlyheadedbyMrPPGSharma,MD,whohasbeenwithGSPCgroup.Mr
G.R.Aloria,IAS,isChairman.MrHimanshuUpadhyayisED,HR&PublicRelations.
MrNitinPatilisEDTechnical,HSEandMaterials.MrNiteshBhandariisCFO.Mr.G.R.
Aloria,IASisChairmanoftheBoard.Nomineedirectorsincludefrompromotergroup
alongwithfiveindependentdirectors.
Financials
IncomeStatement
Y/EMar,Rsmn
Netsales
Growth,%
Totalincome
Rawmaterialexpenses
Employeeexpenses
EBITDA(Core)
Growth,%
Margin,%
Depreciation
EBIT
Growth,%
Margin,%
Interestpaid
NonrecurringItems
Pretaxprofit
Taxprovided
Profitaftertax
NetProfit
Growth,%
NetProfit(adjusted)
Unadj.shares(m)
Wtdavgshares(m)
CashFlow
90,063 65,271 65,555 72,875
16
28
0
11
90,063 65,271 65,555 72,875
74,781 52,394 51,023 56,715
1,134 1,225 1,323 1,442
3,086 3,179 3,274 3,372
11,062 8,473 9,935 11,346
92.7 (23.4)
17.3
14.2
12.3
13.0
15.2
15.6
2,377 2,534 2,823 3,142
8,685 5,939 7,112
8,204
198.0 (31.6)
19.8
15.4
9.6
9.1
10.8
11.3
3,332 2,776 2,062 1,969
1,071
835
703
643
10
0
0
0
6,414 3,999 5,753
6,878
1,979 1,320 1,899 2,270
4,436 2,679 3,855
4,608
4,436 2,679 3,855
4,608
1,086.8 (39.7)
43.9
19.6
4,446 2,679 3,855
4,608
138
138
138
138
138
138
138
138
BalanceSheet
Y/EMar,Rsmn
Cash&bank
Marketablesecuritiesatcost
Debtors
Inventory
Loans&advances
Othercurrentassets
Totalcurrentassets
Investments
Grossfixedassets
Less:Depreciation
Add:CapitalWIP
Netfixedassets
Noncurrentassets
Totalassets

2,378 2,607 1,342
1,025
9,370
0
0
0
3,606 2,613 2,625
2,918
411
298
299
332
2,694 2,775 2,858
2,944
407
419
431
444
18,865 8,711 7,555
7,663
1,620 1,620 1,620
1,620
50,114 55,486 62,147 68,752
5,247 7,782 10,605 13,746
3,574 3,931 4,718
6,133
48,441 51,635 56,260 61,139
0
1
1
1
68,926 61,968 65,436 70,423
Currentliabilities
Provisions
Totalliabilities
Paidupcapital
Reserves&surplus
Shareholdersequity
6,544
1,074
7,618
41,399
49,017
1,377
18,532
19,909
68,926
5,391
1,106
6,498
33,352
39,850
1,377
20,741
22,118
61,968
5,374
1,139
6,514
33,626
40,140
1,377
23,919
25,296
65,436
5,741
1,174
6,914
34,521
41,436
1,377
27,611
28,988
70,423
Y/EMar,Rsmn
Pretaxprofit
Depreciation
Chginworkingcapital
Totaltaxpaid
Capitalexpenditure
Chgininvestments
Chginmarketablesecurities
Freecashflow
Debtraised/(repaid)
Dividend(incl.tax)
Netchgincash
FY16e
3,999
2,534
147
647
6,032
5,729
0
9,370
0
3,641
9,673
9,000
445
9,445
229
FY17e FY18e
5,753 6,878
2,823 3,142
176
258
1,220 1,584
7,533 8,693
7,448 8,021
0
0
0
0
0
0
7,448 8,021
85
673
700
100
650
889
1,350
989
1,265
317
ValuationRatios
PerSharedata
EPS(INR)
Growth,%
BookNAV/share(INR)
FDEPS(INR)
CEPS(INR)
CFPS(INR)
DPS(INR)
Returnratios
Returnonassets(%)
Returnonequity(%)
Turnoverratios
Assetturnover(x)
Sales/NetFA(x)
Receivabledays
Inventorydays
Payabledays
Workingcapitaldays
Liquidityratios
Currentratio(x)
Quickratio(x)
Interestcover(x)
Dividendcover(x)
Totaldebt/Equity(%)
Netdebt/Equity(%)
Valuation
PER(x)
PEG(x)yoygrowth
Price/Book(x)
Yield(%)
EV/Netsales(x)
EV/EBITDA(x)
EV/EBIT(x)
FY15
6,414
2,377
432
1,343
7,016
3,382
1
2,581
56
6,019
998
756
21
736
262
FY15 FY16e
FY17e
FY18e
32.3
19.5
1,086.8 (39.7)
144.6 160.6
32.3
19.5
49.6
37.9
42.6
37.8
5.0
2.9
28.0
43.9
183.7
28.0
48.5
49.6
4.2
33.5
19.6
210.5
33.5
56.3
58.5
5.7
9.7
22.3
11.0
6.8
12.1
7.6
8.1
15.2
9.0
8.6
15.9
9.5
2.1
1.3
1.9
(0.0)
14.6
1.7
19.7
(1.1)
2.5
2.5
2.6
6.5
162.0
150.1
17.7
0.0
3.9
0.9
1.1
9.0
11.4
1.5
1.0
1.3
(0.0)
14.6
1.7
19.7
(0.9)
1.3
1.0
1.2
(0.0)
14.6
1.7
19.7
(0.4)
1.4
1.1
1.2
(0.0)
14.6
1.7
19.7
(0.2)
1.4
1.3
2.1
6.7
105.2
93.4
1.2
1.2
3.4
6.7
89.2
83.9
1.1
1.1
4.2
5.9
77.5
73.9
29.3
(0.7)
3.6
0.5
1.5
11.7
16.7
20.4
0.5
3.1
0.7
1.5
10.0
14.0
17.1
0.9
2.7
1.0
1.4
8.8
12.2
RatingMethodology
Weratestockonabsolutereturnbasis.Ourtargetpriceforthestockshasaninvestmenthorizonofoneyear.
Rating
Criteria
Definition
BUY
>=+15%
Targetpriceisequaltoormorethan15%ofcurrentmarketprice
NEUTRAL
15%>to<+15%
Targetpriceislessthan+15%butmorethan15%
SELL
<=15%
Targetpriceislessthanorequalto15%.
Management
VineetBhatnagar(ManagingDirector)
KinshukBhartiTiwari(HeadInstitutionalEquity)
JigneshShah(HeadEquityDerivatives)
(9122)23002999
(9122)66679946
(9122)66679735
Research
Automobiles
DhawalDoshi
NiteshSharma,CFA
AgriInputs
GauriAnand
Banking,NBFCs
ManishAgarwalla
PradeepAgrawal
PareshJain
Consumer,Media,Telecom
NaveenKulkarni,CFA,FRM
JubilJain
ManojBehera
Cement
VaibhavAgarwal
Economics
AnjaliVerma
(9122)66679769
(9122)66679965
(9122)66679943
(9122)66679962
(9122)66679953
(9122)66679948
(9122)66679947
(9122)66679766
(9122)66679973
(9122)66679967
Engineering,CapitalGoods
JonasBhutta
HrishikeshBhagat
Infrastructure&ITServices
VibhorSinghal
DeepanKapadia
(9122)66679759
(9122)66679986
(9122)66679949
(9122)66679992
Logistics,Transportation&Midcap
VikramSuryavanshi
(9122)66679951
(9122)66679952
PortfolioStrategy
AnindyaBhowmik
(9122)66679764
Technicals
SubodhGupta,CMT
(9122)66679762
ProductionManager
GaneshDeorukhkar
(9122)66679966
Metals
DhawalDoshi
YashDoshi
(9122)66679769
(9122)66679987
MidCaps&DatabaseManager
DeepakAgarwal
(9122)66679944
Oil&Gas
SabriHazarika
(9122)66679756
Editor
RoshanSony
Pharma
SuryaPatra
MehulSheth
(9122)66679768
(9122)66679996
9819972726
Sr.ManagerEquitiesSupport
RosieFerns
(9122)66679971
(9122)66679969
CorporateCommunications
Sales&Distribution
AshvinPatil
ShubhangiAgrawal
KishorBinwal
SidharthAgrawal
BhavinShah
Midcap
AmolRao
(9122)66679991
(9122)66679964
(9122)66679989
(9122)66679934
(9122)66679974
SalesTrader
DileshDoshi
SuniilPandit
Execution
MayurShah
ZarineDamania
(9122)66679976
(9122)66679747
(9122)66679745
(9122)66679945
ContactInformation(RegionalMemberCompanies)
SINGAPORE:PhillipSecuritiesPteLtd
250NorthBridgeRoad,#0600RafflesCityTower,
Singapore179101
Tel:(65)65336001Fax:(65)65353834
www.phillip.com.sg
MALAYSIA:PhillipCapitalManagementSdnBhd
B36BlockBLevel3,MeganAvenueII,
No.12,JalanYapKwanSeng,50450KualaLumpur
Tel(60)321628841Fax(60)321665099
www.poems.com.my
JAPAN:PhillipSecuritiesJapan,Ltd
42NihonbashiKabutocho,Chuoku
Tokyo1030026
Tel:(81)336662101Fax:(81)336640141
www.phillip.co.jp
INDONESIA:PTPhillipSecuritiesIndonesia
ANZTowerLevel23B,JlJendSudirmanKav33A,
Jakarta10220,Indonesia
Tel(62)2157900800Fax:(62)2157900809
www.phillip.co.id
CHINA:PhillipFinancialAdvisory(Shanghai)Co.Ltd.
No550YanAnEastRoad,OceanTowerUnit2318
Shanghai200001
Tel(86)2151699200Fax:(86)2163512940
www.phillip.com.cn
THAILAND:PhillipSecurities(Thailand)PublicCo.Ltd.
15thFloor,VorawatBuilding,849SilomRoad,
Silom,Bangrak,Bangkok10500Thailand
Tel(66)222680999Fax:(66)222680921
www.phillip.co.th
FRANCE:King&ShaxsonCapitalLtd.
3rdFloor,35RuedelaBienfaisance
75008ParisFrance
Tel(33)145633100Fax:(33)145636017
www.kingandshaxson.com
UNITEDKINGDOM:King&ShaxsonLtd.
6thFloor,CandlewickHouse,120CannonStreet
London,EC4N6AS
Tel(44)2079295300Fax:(44)2072836835
www.kingandshaxson.com
UNITEDSTATES:PhillipFuturesInc.
141WJacksonBlvdSte3050
TheChicagoBoardofTradeBuilding
Chicago,IL60604USA
Tel(1)3123569000Fax:(1)3123569005
AUSTRALIA:PhillipCapitalAustralia
Level37,530CollinsStreet
Melbourne,Victoria3000,Australia
Tel:(61)396298380Fax:(61)396148309
www.phillipcapital.com.au
SRILANKA:AshaPhillipSecuritiesLimited
Level4,MillenniumHouse,46/58NavamMawatha,
Colombo2,SriLanka
Tel:(94)112429100Fax:(94)112429199
www.ashaphillip.net/home.htm
HONGKONG:PhillipSecurities(HK)Ltd
11/FUnitedCentre95QueenswayHongKong
Tel(852)22776600Fax:(852)28685307
www.phillip.com.hk
INDIA:PhillipCapital(India)PrivateLimited
No.1,18thFloor,UrmiEstate,95GanpatraoKadamMarg,LowerParelWest,Mumbai400013
Tel:(9122)23002999Fax:(9122)66679955www.phillipcapital.in
DisclosuresandDisclaimers
PhillipCapital(India)Pvt.Ltd.hasthreeindependentequityresearchgroups:InstitutionalEquities,InstitutionalEquityDerivatives,andPrivateClientGroup.
ThisreporthasbeenpreparedbyInstitutionalEquitiesGroup.Theviewsandopinionsexpressedinthisdocumentmay,maynotmatch,ormaybecontraryat
timeswiththeviews,estimates,rating,andtargetpriceoftheotherequityresearchgroupsofPhillipCapital(India)Pvt.Ltd.
ThisreportisissuedbyPhillipCapital(India)Pvt.Ltd.,whichisregulatedbytheSEBI.PhillipCapital(India)Pvt.Ltd.isasubsidiaryofPhillip(Mauritius)Pvt.Ltd.
References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for
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solicitationorasofferingadviceforthepurposesofthepurchaseorsaleofanysecurity,investment,orderivatives.Theinformationandopinionscontainedin
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herownriskandPCIPLdoesnotacceptanyliabilityasaresult.SecuritiesandDerivativesmarketsmaybesubjecttorapidandunexpectedpricemovements
andpastperformanceisnotnecessarilyanindicationoffutureperformance.
Thisreportdoesnotregardthespecificinvestmentobjectives,financialsituation,andtheparticularneedsofanyspecificpersonwhomayreceivethisreport.
Investorsmustundertakeindependentanalysiswiththeirownlegal,tax,andfinancialadvisorsandreachtheirownconclusionsregardingtheappropriateness
of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future
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Certifications:Theresearchanalyst(s)whopreparedthisresearchreportherebycertifiesthattheviewsexpressedinthisresearchreportaccuratelyreflectthe
researchanalystspersonalviewsaboutallofthesubjectissuersand/orsecurities,thattheanalyst(s)havenoknownconflictofinterestandnopartofthe
researchanalystscompensationwas,is,orwillbe,directlyorindirectly,relatedtothespecificviewsorrecommendationscontainedinthisresearchreport.
AdditionalDisclosuresofInterest:
UnlessspecificallymentionedinPointNo.9below:
1. TheResearchAnalyst(s),PCIL,oritsassociatesorrelativesoftheResearchAnalystdoesnothaveanyfinancialinterestinthecompany(ies)coveredin
thisreport.
2. TheResearchAnalyst,PCILoritsassociatesorrelativesoftheResearchAnalystaffiliatescollectivelydonotholdmorethan1%ofthesecuritiesofthe
company(ies)coveredinthisreportasoftheendofthemonthimmediatelyprecedingthedistributionoftheresearchreport.
3. TheResearchAnalyst,his/herassociate,his/herrelative,andPCIL,donothaveanyothermaterialconflictofinterestatthetimeofpublicationofthis
researchreport.
4. TheResearchAnalyst,PCIL,anditsassociateshavenotreceivedcompensationforinvestmentbankingormerchantbankingorbrokerageservicesorfor
anyotherproductsorservicesfromthecompany(ies)coveredinthisreport,inthepasttwelvemonths.
5. TheResearchAnalyst,PCILoritsassociateshavenotmanagedorcomanagedintheprevioustwelvemonths,aprivateorpublicofferingofsecuritiesfor
thecompany(ies)coveredinthisreport.
6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in
connectionwiththeresearchreport.
7. TheResearchAnalysthasnotservedasanOfficer,Director,oremployeeofthecompany(ies)coveredintheResearchreport.
8. TheResearchAnalystandPCILhasnotbeenengagedinmarketmakingactivityforthecompany(ies)coveredintheResearchreport.
9. DetailsofPCIL,ResearchAnalystanditsassociatespertainingtothecompaniescoveredintheResearchreport:
Sr.no. Particulars
Yes/No
1
Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for
No
investmentbankingtransactionbyPCIL
2
WhetherResearchAnalyst,PCILoritsassociatesorrelativesoftheResearchAnalystaffiliatescollectivelyholdmorethan1%ofthe
No
company(ies)coveredintheResearchreport
3
WhethercompensationhasbeenreceivedbyPCILoritsassociatesfromthecompany(ies)coveredintheResearchreport
No
4
PCIL or its affiliates have managed or comanaged in the previous twelve months a private or public offering of securities for the
No
company(ies)coveredintheResearchreport
5
Research Analyst, hisassociate,PCILoritsassociates havereceivedcompensationforinvestmentbankingormerchantbanking or
No
brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve
months
Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment
banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek
compensationforinvestmentbankingservicesfromthesubjectissuersinthenextthree(3)months.PhillipCapital(India)Pvt.Ltdisnotamarketmakerinthe
securitiesmentionedinthisresearchreport,althoughit,oritsaffiliates/employees,mayhavepositionsin,purchaseorsell,orbemateriallyinterestedinany
ofthesecuritiescoveredinthereport.
Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or
particularrequirementsofanyindividualrecipienthereof.Certainsecuritiesmaygiverisetosubstantialrisksandmaynotbesuitableforcertaininvestors.
Eachinvestormustmakeitsowndeterminationastotheappropriatenessofanysecuritiesreferredtointhisresearchreportbaseduponthelegal,taxand
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value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or
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Sources,CompletenessandAccuracy:ThematerialhereinisbaseduponinformationobtainedfromsourcesthatPCIPLandtheresearchanalystbelievetobe
reliable,butneitherPCIPLnortheresearchanalystrepresentsorguaranteesthattheinformationcontainedhereinisaccurateorcompleteanditshouldnot
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INSTITUTIONALEQUITYRESEARCH

Proposed liquefaction capacity totals a whopping 836mmtpa, though there are

The Indiangovernment expects urea demand to rise to34mmt by FY18/19 with an

For our coverage universe, we maintain a Q2 runrate of 56mmscmd volumes for

Among new terminals, GSPC promoted 5mmtpa Mundra terminal and

FY15 FY16E FY17E FY18E FY19E FY20E

Recently, there havebeen some hybrid arrangements, linked tootherhubs suchas

However as per recent media reports, following negotiations involving Indias

Our volume trajectory for Dahej terminal is 116%/120% capacity utilisation in

The GAILpromoted JagdishpurHaldia gas project, rechristened Urja Ganga, is the

Amendment of volume divisor assumption while determining trunk gas pipeline

constraints, it led to the state pursuing nondiscriminatory allocation of cheaper

There is full domestic gas allocationfor CNG/DPNG requirements of aCGD entity

Supply of cheap domestic gas for CNG/DPNG will continue (~10mmscmd

Vehicles Mileage Distance CNG/vehicle

We estimate a total potential demand of ~0.6mmscmd (15% of IGLs current

Q2 margins were weak.However, lesserthanrequired CNG/PNG price cutsafter the

FY16E FY17E FY18E FY19E FY20E

FY16E FY17E FY18E FY19E FY20E

FY16E FY17E FY18E FY19E FY20E

FY13 FY14 FY15 FY16E FY17E FY18E FY19E FY20E

CNG is manufactured by compressing gas using high pressure which is filled in

2,185 2,221 2,053

Gujarat State Petronet (GSPL) has a near monopolistic presence in gasintensive

Gujarat is home to threemega refineries RIL Jamnagar (62mmtpa nameplate

While actual impact on averagebook tariff realisation is difficult to ascertain,

1,243 1,243 1,243 1,243

FY16E FY17E FY18E FY19E FY20E

FY16E FY17E FY18E FY19E FY20E

FY16E FY17E FY18E FY19E FY20E

FY15 FY16E FY17E FY18E FY19E FY20E

We estimate capex to remain fairly constant at an annual runrate of Rs2.0

Gujarat State Petronet Ltd (GSPL) was formed as a transmission support

As per PNGRB regulations, ~25% capacity has to be under common carrier

FY15 FY16E FY17E FY18E FY19E FY20E

FY16E FY17E FY18E FY19E FY20E

Mangalore area demand is estimated at 1.01.5mmtpa with MRPL and Mangalore

FY15 FY16E FY17E FY18E FY19E FY20E

FY16E FY17E FY18E FY19E FY20E

FY15 FY16E FY17E FY18E FY19E FY20E

FY16E FY17E FY18E FY19E FY20E

We estimate capex to come down to just Rs 400mn by FY20 (from ~Rs

FY15 FY16e FY17e FY18e

Liquidfuelreplacement customers were premium users earlier due to favourable

Large exposure to Morbis ceramic industry: GGL sells ~2.3mmscmd of IPNG to

Ceramic customers demand IPNG at Rs 25/scm: Assuming a 50% cut in GGLs

Out of ~2.3mmscmd volumes to Morbi, GGL has derisked around 50%

FY16E FY17E FY18E FY19E FY20E

FY16E FY17E FY18E FY19E FY20E

FY15 FY16E FY17E FY18E FY19E FY20E

FY16E FY17E FY18E FY19E FY20E

CNG is manufactured by compressing gas using high pressure, which is filled in

FY15 FY16e FY17e FY18e

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