spark capital- natural gas utilities- in-depth report - alarms on lng are scare mongering
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Natural Gas Utilities Sector
In–depth report
Oct 2011
Find Spark research on Bloomberg (SPAK <go>), Thomson First Call, Reuters Knowledge and Factset
Sector Outlook Positive
Natural Gas Utilities
1
Executive Summary
Market data
BSE SENSEX 16536
Nifty 4974
BSEO&G 8632
Date Oct 12, 2011
Mayur Patel, CFA
mayur@sparkcapital.in
+91 44 4344 0037
Vishnu Kumar A S
vishnu@sparkcapital.in
+91 44 4344 0069
Alarms on LNG are scaremongering; despite rising LNG prices, replacement economics
remain attractive in core segments; Upgrade PLNG to Buy and Reiterate Buy on GAIL
There has been lot of noise in relation to rising LNG prices denting gas demand in the country. Based on our
thorough channel checks with refineries and CGDs (key users of spot RLNG), we observed that substitution
economics of RLNG even at $18-$20 (delivered price) remain attractive in the core segments – CNG and LFR in
CGD and Naphtha/Diesel replacement in refineries. The low cost fuels (FO/LSHS) replacement which is a small
segment has seen some pounding due to high spot prices. Spot LNG prices are likely to remain stubborn over
next couple of months due to chaotic buying by Japan. However, the current levels which are threatening to
breach oil parity are not sustainable as demand would shift back to oil – already China and UK are reducing
spot LNG offtake. We do not see any risks to LNG spot volumes (just 0.5-0.7mmtpa for PLNG and 1.8mmtpa for
Shell Hazira) which are quite nominal given the rock solid demand in the country. Nevertheless, lofty
marketing margins on spot LNG booked by PLNG and GAIL in 1Q would taper down over the next two
quarters. We believe the recent correction of 10-12% in PLNG is unwarranted and gives an opportunity to buy
into the Indian LNG story. Upgrade PLNG from ADD to Buy and Reiterate Buy on GAIL
Inter-ministerial committee dropped Gas Pooling but recommends pref allocation to priority sectors and LNG usage to
meet 22-27% of the requirement in Fertiliser/Power projects. It also recommends capping of allocation to CGDs at
current levels and Industrials at 5mmscmd (current cons. is 18mmscmd). Further, it is proposed to do away with the 5%
custom duty on LNG and accord “declared goods” status to N.Gas. This is a strong positive for PLNG, GAIL and GSPL
from a long term perspective as it would increase appetite for costly LNG in the Fertiliser and Power sectors.
Declining KGD6 supplies continues to restrain throughput levels in GAIL and GSPL pipelines and there is no major
incremental domestic supply over the next 2 years. Benign petchem prices, gas marketing margins and sequentially
lower subsidy would cushion GAIL’s profitability in the near term. On the CGD side, rising LNG prices and
strengthening dollar have started putting pressure on margins but IGL would be better off given its recent merger of
allocation and consistent price hikes. GGAS’ spreads have peaked out in 2QCY11 and likely to taper down over
subsequent quarters as it is not planning any further price hike till December. GSPL is likely to record weak
performance in the near term with flat volumes due to decline in KGD6 supplies and lower LNG offtake in Gujarat
power utilities. Further delay in tariff approval and postponement of listing of GSPC gas would impede any re-rating in
the near term. Prefer GAIL over GSPL in midstream and IGL over GGAS in CGDs
Valuation and view: After a 10-12% correction over last month, PLNG is trading at attractive valuation of 12x EPS and
2.8x book of FY13E. GAIL is a compelling defensive play available at attractive valuations of 1.9x FY13E book (ex-
invest.) which is at the lower end of its trading band. GSPL is trading at par with GAIL at ~2.0x FY13E book (ex-invest.)
but we do not see any near term positive triggers; IGL and GGAS are trading at rich valuations of 15x FY13E EPS but
IGL would continue to outperform driven by strong volume growth and consistent price hikes.
Risks: Prolonged tightening of global R-LNG markets; Delay in execution of ongoing pipelines / terminals
TP (Rs) Abs. Rel.
GAIL 541 BUY OPF
GGAS 402 REDUCE UPF
GSPL 96 REDUCE UPF
IGL 451 ADD OPF
PLNG 190 BUY OPF
Sector Outlook Positive
Natural Gas Utilities
2
Current Developments
Rising LNG Prices and
strengthening USD are pushing
input cost higher while Brent
remains flat
LNG prices likely to remain
stubborn during winters
KG D6 continues to fall
Final Report suggest no
pooling but recommends tax
sops and ~25% LNG usage in
priority sectors
Surging imported Urea prices
pushing GOI to fasttrack
fertilizer projects despite high
LNG prices
Recent MoUs/HOA and
investments in shale gas assets
to provide supply visibility for
upcoming LNG terminals
Our views – Impact on the sector
Weakening crude and rising Spot LNG prices (10-15% over last 6months to
Delivered price of ~$18-20/mmbtu) have narrowed savings against low cost fuels
like FO/LSHS (20-25% of replacement demand in refineries). However, LNG
remains attractive in refineries (Naptha replacement and gas turbines
forming 70-75% of req in refineries) and CGDs. E.g. GSPC Gas runs entirely
on LNG (~3.8mmscmd)
Spot LNG prices are likely to remain stubbornly high ($15-$17) over next 3-4
months owing to Japan crisis. However, prices above oil parity are not sustainable
and we may see offtake from China and Europe coming down
KG D6 supplies have dipped to 44.5mmscmd levels as compared to 60mmscmd a
year ago. RIL’s new partner BP has guided to ramp up supplies by FY14, supplies
till then may remain tepid
Inter-ministerial committee drops Pooling, but strongly recommends RLNG usage
(22-25% of requirement) in on-going/future projects in Fertiliser and Power. This
would surely enhance RLNG appetite in the priority sectors. It also recommends
exemption of 5% custom duty on LNG and to accord declared goods status to
N.Gas for VAT purpose
Imported urea prices have surged by ~50% in the last six months to ~$550/MT. The
conversion and new/debottlenecking projects (Gas req. of 28mmscmd) are now
placed on the top of the GOI’s agenda. The 22-25% LNG usage recommended can
bring down the blended cost to $9-10 levels even if RLNG costs $18. At this
blended rate the cost of prodn would be in the range of $400-$420 vs. imported
price of $550.
Recently various Indian companies (GAIL, GSPC, PLNG & IOC) signed an MOU
with Gazprom for supply of LNG by FY15/16(10mmtpa); GSPC signed a 2.5mmtpa
deal for supplies starting FY14, such large deals provide strong volume cushion for
R-LNG terminals under constrn. (60% of FY16 capacity is tied with long term
supplies)
Stock specific impact
PLNG – Despite rising prices, spot
volumes of 0.5-0.7mmtpa can easily be
placed as demand remains buoyant.
Market margins may normalise to $0.20-
$0.25 levels.
GAIL – Adverse impact on QoQ drop in
brent is greatly offset by higher USD in
Petchem and LPG biz; Gas marketing
margins may come down from previous
quarter’s highs though.
Negative for Transmission biz of GAIL and
GSPL. Positive for PLNG as more RLNG
would be required to meet the deficit.
Positive for the RLNG story. Positive for
PLNG, GAIL and GSPL.
Positive for the RLNG story. Positive for
PLNG, GAIL and GSPL.
Positive for the RLNG story. Positive for
PLNG, GAIL and GSPL.
LNG even at $18-$20 generates attractive savings in core segments; Committee
recommends 22-27% LNG usage in Fert/power; PLNG & GAIL in sweet spot
Sector Outlook Positive
Natural Gas Utilities
3
PLNG
Temporary tightening of LNG markets would not affect PLNG’s performance as substantial part of its capacity is tied-up and
marketing margins are also locked in short term contracts. Out of our estimated 10.5mmtpa FY12E dahej volumes (7.5mmtpa Long
term; 1.5mmtpa short term with built in margins; 1mmtpa 3rd party Regas - 0.5 GAIL Marubeni and 0.5-1 GSPC contracts) spot
volumes would be hardly 0.5-0.7mmtpa. Further, substantial part of spot/short term volumes are placed in refineries and CGDs where
LNG remains attractive vs. Naptha (@ $27/mmbtu), Petrol, Diesel etc,. Sustained spot volumes and margins ($0.2-$0.25) and timely
execution of Kochi terminal would drive momentum in the stock going forward. Current underperformance gives a good opportunity to
buy into the stock– Upgrade to Buy-OPF
GAIL
The strengthening USD would mostly offset the negative impact of weakening crude on Petchem and LPG realisations in the near
term. Falling KGD6 volumes would put pressures on transmission throughput, hence we have reduced our volume estimates.
However, gas marketing margins would continue to cushion profitability and subsidy reforms may emerge as a near term trigger.
Current valuations are attractive to enter a solid defensive story which can yield attractive returns in the medium term. Reiterate Buy-
OPF
GSPL
Tumbling KGD6 volumes have already started putting pressure on GSPL pipelines. Further, Tariff overhang is likely to persist for 6-12
months as the new chairman and members of PNGRB would take some time to settle down. New pipelines are won at aggressive
capex and acquiring RoU outside Gujarat would be a difficult game – too early to assign any value to these. Lack of any near term
triggers (Listing of GSPC Gas postponed) would also entail underperformance. Reiterate Reduce-UPF
IGL
In a scenario of rising LNG prices and strengthening dollar, IGL would outperform given its strong pricing power esp. in the CNG
market. Recent merger of APM allocation and consistent price hikes has fortified it to fight against rising gas costs. Heightened
spreads would normalise over ensuing quarters though. Robust volume growth, strong pricing power and quality balance sheet would
continue to drive outperformance in near term. Reiterate Add-OPF
GGAS
GGAS has also showcased pricing power by sharply increasing prices over last 6-8 months to pass on rising gas costs. However,
industrial customers (>80% of volumes) especially textile processors are posing resistance. After the recent price hike in August,
mgmt has no plans for further hikes till December. This would imply that rising LNG prices and USD would pull down spreads from
Rs. 5.9 in 2QCY11 to Rs. 4.9 by 4QCY11E. In the absence of any strong visibility for volume growth, stock would underperform due to
current rich valuations. Reiterate Reduce-UPF
Snapshot of Views on Stocks
Sector Outlook Positive
Natural Gas Utilities
4
Valuation Matrix
* For Gujarat Gas FY11/12/13 represents CY10/11/12 financial year end
Company
Sales (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EPS (Rs.) CAGR FY11-FY13E
FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E Sales EBITDA PAT
GAIL 324,586 370,884 417,844 54,546 62,114 70,908 35,611 39,570 41,733 28.1 31.2 32.9 13.5% 14.0% 8.3%
Gujarat Gas * 18,493 25,280 29,697 4,156 5,249 5,566 2,565 3,448 3,608 20.0 26.9 28.1 26.7% 15.7% 18.6%
Gujarat State Petronet 10,465 10,892 11,132 9,694 10,094 10,263 5,064 4,794 4,614 9.0 8.5 8.2 3.1% 2.9% -4.5%
Indraprastha Gas 17,441 25,019 33,768 4,923 6,949 8,100 2,598 3,472 3,938 18.6 24.8 28.1 39.1% 28.3% 23.1%
Petronet LNG Ltd 131,973 216,743 312,051 12,163 16,813 20,326 6,196 9,075 9,716 8.3 12.1 13.0 53.8% 29.3% 25.2%
Company
P/E P/B EV/EBITDA
CMP
(Rs)
Mkt Cap Target Rating
FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E (Rs. mn) Basis Price Absolute Relative
GAIL 14.9x 13.4x 12.7x 2.7x 2.4x 2.1x 9.3x 8.2x 7.7x 417 528,955 DCF 541 BUY O-PF
Gujarat Gas * 21.0x 15.6x 14.9x 6.4x 5.3x 4.6x 11.6x 8.9x 8.3x 420 53,865 DCF 402 REDUCE U-PF
Gujarat State Petronet 11.6x 12.2x 12.7x 2.9x 2.5x 2.2x 7.3x 7.4x 7.7x 104 58,512 DCF 96 REDUCE U-PF
Indraprastha Gas 23.0x 17.2x 15.1x 5.9x 4.7x 3.8x 12.7x 9.0x 7.8x 426 59,640 DCF 451 ADD O-PF
Petronet LNG Ltd 19.1x 13.1x 12.2x 4.4x 3.5x 2.9x 12.3x 9.6x 7.9x 158 118,500 DCF 190 BUY O-PF
Sector Outlook Positive
Natural Gas Utilities LNG prices on the rise – Core segments (Naphtha, Petrol, Diesel etc) continue to be
attractive; savings diminish on low cost fuel replacement (FO/LSHS)
5
Core segments remain attractive
Source: BPCL, Bloomberg, Spark Capital Research. Petrol, Diesel prices at Delhi
• Spot R-LNG prices have reached $15-$16/mmbtu from $12-$13/mmbtu in the
previous quarter. At these levels, the delivered prices work out to $19/mmbtu
in Gujarat and ~$20/mmbtu in the Northern part of the country. While this rally
has diminished savings on FO/LSHS (small demand segment), the
replacement of other fuels like Naphtha, Petrol, Diesel etc remains attractive
• While the LNG prices are likely to remain strong during winters (Oct-Mar) due
to Japan crisis, it should taper down subsequently as some off takers would
refrain from prices higher than the oil-parity. Although the timeline of restart of
nuclear reactors is uncertain, the new PM has clearly shown strong inclination
to quickly resume unaffected units
• The spot rates of $15-$16 are threatening to breach the oil-parity (16.67% of
JCC) levels. We believe the prices cannot sustain above oil-parity level for
long as demand would shift out of gas to oil
Spot R-LNG delivered price at $19-$20/mmbtu
Source: News reports, Company data, Spark Capital Research.
* Guj. - GSPL tariff of Rs. 800/mscm; Outside Guj. highest tariff of DVPL upg Rs. 1900/mscm
$/mmbtu Gujarat North India
FOB 14.0 14.0
Shipping cost 0.5 0.5
CIF Price 14.5 14.5
Import duty @ 5.15% 0.7 0.7
CIF Price (incl. tax) at Terminal 15.2 15.2
Re-gas tariff (Rs. 34/mmbtu) 0.74 0.74
Ex Terminal 16.0 16.0
VAT @15% 2.4 2.4
Marketing margins of PLNG 0.3 0.3
Pipeline tariff (max) including service tax of
10%* 0.5 1.3
Delivered Price 19.2 19.9
Fuel Fuel Oil LSHS Naphtha Deisel Petrol
Price $/MT 767 799 1,086 1,054 1,706
Kcal / Kg 10,500 10,000 10,500 9,500 11,250
Equiv.Cost
($/mbbtu) 18 20 26 28 38
Spot price
($/mmbtu) 20.0 20.0 20.0 20.0 20.0
Savings -8% 1% 30% 40% 91%
Spot R-LNG prices likely to inch higher over next few quarters
Source: Bloomberg, Spark Capital Research.
$10.9 $11.2 $11.0 $12.0
$13.8
$16.0 $16.5 $16.5
$15.0
$6
$10
$14
$18
1QFY11 3QFY11 1QFY12 3QFY12E 1QFY13E
Japan LNG price ($/mmbtu)
Spot R-LNG to remain high
as Japan & Korea would
draw more N.gas during
winter (Oct’11-Mar’12)
5
Sector Outlook Positive
Natural Gas Utilities Japan’s Nuclear Shutdown may continue to push LNG prices upward during the
winter season
Japanese LNG Cons. in the Power Sector to shoot by 8-10 MMTPA
Source: FEPC, Spark Capital Research
2.5
2.9
3.3
3.7
4.1
4.5
4.9
5.3
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
2009 2010 2011
LN
G c
on
s.
in
po
wer
(MM
T)
• The Japanese Earthquake has knocked off
a good part of the country’s nuclear based
capacity, as a result LNG imports have
increased by ~20% for firing gas based
power plants
• Currently only 11 out of the 54 nuclear
reactors are operational and even those
operating are due for maintenance
shutdown by April’12
• The Japanese Govt. has set up an elaborate
procedure for restarting nuclear units after
approving satisfactory stress test results.
But, no deadline for restart has been set yet
The Institute of Energy Economics forecasts incremental LNG consumption under 2 scenarios:
Restart of Nuclear plants by Sep – CY11 +8 MMTPA; CY12 -3MMTPA
No restart of Nuclear plants – CY11 +14MMTPA; CY12 +19.5MMTPA
Although, recent commentary by Japanese Prime minister – Mr. Yoshihiko Noda was much in favour of reviving nuclear reactors, the timing
and extent of revival is still uncertain
Recently, Japanese Prime Minister Yoshihiko Noda, said he is determined to restart idle reactors by next summer after conforming to the
safety standards. He further added that it was "impossible" for the country to get by without them or to consider a quick phase out of nuclear
energy. He plans to bring online the unaffected units (shutdown for maintenance) as early as possible. Noda is more seriously worried about
the risk of power shortages on the manufacturing sector. Further, a total nuclear shutdown would add nearly $40 billion a year in additional
fuel costs. Source: WSJ, BBC
6
Sector Outlook Positive
Natural Gas Utilities
Japan LNG prices threatening to breach Oil Parity – Unlikely to hold !
Source: Bloomberg, Spark Capital Research.
$0
$5
$10
$15
$20
$25
Japan LNG price CIF ($/mmbtu) JCC N.gas-Oil parity price ($/mmbtu)
Japanese LNG prices are correlated to JCC with a lag of 2-3 months
Oil parity: It is the LNG price that would be equal to that of crude
oil on a barrel of oil equivalent basis. Energy equivalent price is
calculated by dividing oil prices (in $/bbl) by a factor of 6 to give
equivalent prices in $/mmbtu.
The current Japanese LNG price (CIF) of ~$16/mmbtu is close to
the oil parity of $17.2/mmbtu. Even if it breaches the oil parity, it
is unlikely to sustain as it will make customers shift back to
crude related products.
The Japanese LNG price has remained below the Oil parity for
~80% of its 10year history. Hence we don’t see LNG prices
sustaining at such elevated levels in the long run.
News flow from China and Britain seems to suggest that their spot requirements during the winter are likely to remain muted…
Sep 2011(China): China's CNOOC, the country's largest LNG player, has little appetite for spot imports of LNGfor this winter as a jump in Japanese
demand has tightened near-term supply and led to a surge in freight costs. Also China's role in the spot LNG market in the short to medium term is
expected to be minimal due to a government policy that requires all LNG terminals to lock in the bulk of their requirement. CNOOC’s official also quoted
that they don't really see a shortage from the CNOOC side as they are well-covered by term supplies. Source: Reuters, Ibtimes
Sep’11 (UK): National Grid, the British network operator has forecasted gas demand to fall by 2 percent this winter as power plants choose cheaper coal
to generate power instead of gas. Also, increasing supplies from North sea, milder weather than the prev. two years and full gas storage capacity are
likely to result in lower LNG offtake. Source: Reuters, Platts, Catalyst- Commercial
LNG prices: Near term LNG prices likely to breach oil parity, unlikely to sustain in the
long run; China & Britain unlikely to pursue aggressive buying in winter..
7
Sector Outlook Positive
Natural Gas Utilities Refinery: Status Check – Despite rising LNG prices key demand segments remain
unaffected – No major risk to PLNG’s spot volumes
~70-75% of N.gas replace Naphtha/Diesel – hence not much risk..
Source: Industry, Spark Capital Research
Refinery Status Check – N.gas replacing Naphtha intact, shift back to FO/LSHS seen in RIL & Essar Oil
Key Refineries MTPA Cur. usage
(mmscmd)
Potential
(mmscmd) Channel checks
Reliance 60,000 7.0 10.0 N.Gas consumption dropped from ~9mmscmd in 1QFY12 to ~7mmscmd due to shift
back to FO/ LSHS. RIL can draw upto 12mmscmd
Essar Oil 10,500 0.4 1.8 Essar has dropped its gas consumption from ~0.7mmscmd to ~0.4mmscmd, due to
shift to FO/LSHS for process users
HPCL, Mumbai 6,500 0.8 1.1
The Refinery is using N. gas to replace Naptha and as fuel in its CPP. It is also
undertaking feasibility studies for shifting from FO and LSHS. Gas req.could go upto
1.5mmsmcd
BPC, Mumbai 12,000 1.2 2.0 The Mumbai refinery is consuming ~1.2mmscmd of N.gas and there are no
indications of shifting to FO/LSHS for process firing
IOC, Mathura,
Panipat, Koyali 42,700 5.0 7.5
IOC Mathura (1.5mmscmd) has an environmental mandate to use gas irrespective of
the prices – Panipat and Gujarat refineries are also consuming gas without any
decline in offtake
Total 131,700 14.4 22.4
Source: Spark Capital Research
RIL & Essar Oil have dropped
their gas usage to the extent of
FO/LSHS replacement as
internally generated fuels
(FO/LSHS) are cheaper than
N.gas at current prices.
Not much savings on FO/LSHS; ~30% savings on Naphtha
Source: BPCL, Bloomberg, Spark Capital Research. Petrol & Diesel prices at Delhi
Fuel Fuel Oil LSHS Naphtha Diesel Petrol
Price $/MT 767 799 1,086 1,054 1,706
Kcal / Kg 10,500 10,000 10,500 9,500 11,250
Equiv.Cost
($/mbbtu) 18 20 26 28 38
Spot price
($/mmbtu) 20.0 20.0 20.0 20.0 20.0
Savings -8% 1% 30% 40% 91%
N. Gas required for Naphtha/Diesel replacement forms 70-75% of the gas requirement of Refinery – economics are attractive. N. gas req. for FO/LSHS
replacement forms 20-25% of refinery requirement – economics are dull.
Present
configuration
Present
configuration Present input
Natural Gas
Requirement
(% of total)
Present
configuration
Present
configuration
Natural gas
req. for a
15mmtpa
Power
plant (CPP)
Process
users Hydrogen generation
Naphtha / Diesel Fuel Oil / LSHS Naphtha
~40%-45% ~20%-25% ~35%-40%
1.2-1.6mmscmd 0.6-0.8mmscmd 1.0-1.2mmscmd
8
Sector Outlook Positive
Natural Gas Utilities Refinery: Strong potential – Key determinants would be Pipeline connectivity and
gas supply
Refineries MTPA Potential
(mmscmd) Remarks
Tota Gas based capacity 131,700 8.0
IOCL Haldia 7,500 1.3
HPCL, Visakh 8,300 1.4 The Vizag refinery is currently undertaking studies to shift to N.gas and final investment
decision is likely to be taken in line with pipeline connectivity and gas availability
BPCL, Kochi 9,500 1.6 Feasibility studies for switching to N. gas is currently being undertaken; PLNG Kochi
terminal likely to supply N. gas
CPCL, Chennai 11,500 1.9 Feasibility studies for switching to N. gas is currently being undertaken; PLNG's Kochi
terminal or IOCL's proposed Ennore terminal likely to supply N.gas
MRPL, M'lore 11,820 2.0 Undertaking feasibility studies; likely supply from PLNG’s Kochi terminal through GAIL’s
PL
Bina 6,000 1.0 Refinery capable of using N.gas; no PL connectivity yet
Bhatinda 9,000 1.5 Capable of using N.gas.; refinery in commissioning/stabilisation stage; N.gas req. is
likely to be assessed once plant is fully operational.
Others 7,078 1.2
Total Conversion Opportunity 70,698 19.7
IOC Paradip (New) 15,000 2.5 Completion by FY13/14
Nagarjuna (New) 6,000 1.0 Completion by FY13
MRPL (Expansion) 3,180 0.5 Completion by FY12/FY13
Essar (Expansion) 7,500 1.3 Completion by FY13
BPCL (Expansion) 2,500 0.4 Completion by FY14
HPCL (Expansion) 5,200 0.9 Completion by FY13/14
Bina (Expansion) 3,000 0.5 Completion by FY15
BPCL Kochi (Expansion) 6,000 1.0 Completion by FY15
CPCL (Expansion) 5,500 0.9 Completion by FY16
Total Addnl. Capacity (FY12-16) 53,880 9.0
Total Refinery Capacity (FY16) 256,278 28.7
We have conservatively
est. the incremental
demand at 2.5 mmscmd
for a 15MMTPA plant vs
an ideal req. of 3.5-
4mmscmd, thus giving
considerable upside to
our est. of 29mmscmd of
incremental N.gas req. by
FY16E
Most of these plants
are undertaking
studies for conversion
to N.gas and are likely
to be completed only
when the refineries
are connected with
gas pipelines
9
Sector Outlook Positive
Natural Gas Utilities
CGD: Yes there is an appetite for expensive R-LNG (Even at $20/mmbtu)
Commercial PNG - Attractive - Domestic PNG will make sense if noises on Policy decisions happen (Rs.700/ cylinder)
Domestic Commercial
Weight (Kgs) 14.2 14.2 14.2 19.0 19.0 19.0
Price Rs. / Cylinder 395 700 700 1,300 1,300 1,300
Price (Rs. /Kg) 28 49 49 68 68 68
Calorific value (kcal/kg) 11,900 11,900 11,900 11,900 11,900 11,900
Rs./1000 kcal 2 4 4 6 6 6
Gas Cost $/mmbtu $7 $7 $20 $7 $15 $20
PNG Price Rs/ scm 22 22 42 30 43 51
Calorific value 8,700 8,700 8,700 8,700 8,700 8,700
Rs. / 1000 kcal 3 3 5 3 5 6
Savings % -8% 39% -15% 40% 15% -2%
Source: IGL, Industry, Spark Capital Research
*The PNG price is arrived at after factoring in CGD operators gross margins of Rs. 8/scm or Domestic and Rs. 17.5/scm
for commercial. CNG / PNG prices at Delhi
Govt in May’11 had proposed to deregulate LPG
prices and make direct cash transfer to bank
accounts of BPL families. Based on news reports
this move would increase the cylinder prices to Rs.
700 and save the exchequer about Rs. 110bn.
While it is at a very nascent stage , PNG will make
good economics if this policy move happens
CNG economics are extremely attractive even at R-LNG prices of $20/mmbtu 4 wheelers Bus
Fuel Petrol Petrol Petrol Deisel Deisel Diesel
Price (Rs. / Ltr) 66.8 66.8 66.8 41.3 41.3 41.3
Mileage (Km /Ltr) 12.0 12.0 12.0 4.0 4.0 4.0
Running Cost (Rs. /Km) 5.6 5.6 5.6 10.3 10.3 10.3
Gas Cost $/mmbtu 7.0 15.0 20.0 7.0 15.0 20.0
CNG (Rs. / Kg)* 32.0 49.1 61.7 30.2 49.1 61.7
Mileage (Km / Kg) 18.0 18.0 18.0 4.5 4.5 4.5
Running Cost (Rs. /Km) 1.8 2.7 3.4 6.7 10.9 13.7
% Saving 68% 51% 38% 35% -6% -33%
Daily Average Kms 50.0 50.0 50.0 150.0 150.0 150.0
Kit Cost (Rs. per kit) 35,000 35,000 35,000 300,000 300,000 300,000
Saving /Yr (300 days
assumed) 56,833 42,563 32,092 162,884 NA NA
Payback Period (Yrs) 0.6 0.8 1.1 1.8 NA NA
Source: IGL, Industry, Spark Capital Research
*The CNG price is arrived at after factoring in CGD operators gross margins of Rs. 10/Kg and excise duty of 12.5%
CNG/Petrol/Diesel prices at Delhi
CNG generates attractive savings vs. alt.
fuels even at gas cost (RLNG) of
$20/mmbtu
Commercial PNG is attractive at $15/mmbtu levels
and breaks even at $20/mmbtu levels
Industrial: Savings on Naphtha/Diesel;
Breaks even with FO/LSHS
Fuel Fuel Oil LSHS Naphtha Diesel
Price $/MT 767 799 1,086 1,054
Kcal / Kg 10,500 10,000 10,500 9,500
Equiv.Cost per
mmbtu ($/mbbtu) 18 20 26 28
Spot price
($/mmbtu) 20.0 20.0 20.0 20.0
Savings -8% 1% 30% 40%
Source: BPCL, Spark Capital Research
10
Sector Outlook Positive
Natural Gas Utilities Inter – ministerial committee drops pooling; Recommends pref. domestic gas
allocation and 22-27% LNG usage for Fertiliser/Power projects
All power plants which apply for linkage to have a PPA of 85% of
their generation. – Risks to gas allocation for merchant units like
Torrent, GMR and Lanco.
Fertilizer and Power on priority for allocation of domestic natural gas 2
Recommendation to use 22-27% R-LNG in fertilizer and power for incremental gas
requirements
Long term positive for PLNG and GAIL as it increases R-LNG
demand in Fertilizer and Power sectors. However, the report
remains silent on the acceptable R-LNG price levels at which the
75:25 mix is feasible in the new fertilizer/power units.
3
No addnl. allocation to CGD apart from the existing allocation of 6mmscmd and 1mmscmd
be reserved for court mandated customers
Neutral for IGL and Guj Gas. They are not factoring in any
additional allocation. 4
Non-priority sectors’ allocation would be capped at 5mmscmd vs. current offtake of
~18mmscmd. They need to rely more on RLNG so that cheap domestic gas is diverted
towards regulated sectors
Negative for Refineries, Steel, Sponge iron etc. Positive for
PLNG and GAIL, as they would be selling more R-LNG to these
non-priority sectors to offset the decline in domestic allocation. 5
The Committee does not recommend pooling mechanism for natural gas at the overall
level, nor does it recommend a price pooling on sectoral basis, except where that may be
found to be the best workable option
Though the committee has rejected the idea of pooling, it still
suggests pooling where it could be a workable option, inferring
a potential in fertiliser and power sectors.
1
Pipeline tariff which is presently being set on a cost/bid-based Zonal tariff basis should be
modified to the extent that the outlier tariffs (for small offtakes) should not be more than 50
per cent of the average tariffs
Based on our channel checks GAIL’s pipeline tariff do not vary
significantly across zones. However, GSPL’s tariff for long
distance zones are higher than zones nearer to the source –
this clause may cause some changes to the tariff set up of
GSPL.
6
Committee recommends to align the import duty on LNG (~5%) with that of crude
petroleum (Nil duty) and to accord declared good status to natural gas/LNG 7 Positive for Gas Utilities and end consumers.
It has recommended a more fair mechanism for fixing prices of domestic gas - Inferred
price based on average of Henry Hub and netback price of Japan Korea Marker or Asian
LNG 8
This should definitely push domestic prices upwards and
therefore it is positive for gas producers like ONGC, OIL,
and RIL.
We believe PLNG and GAIL to be the key beneficiaries of these recommendations. PLNG would benefit from higher volumes due to increased R-LNG demand in
priority sectors. GAIL would gain from higher transmission volumes and better marketing volumes/margins. GSPL may also benefit from increased R-LNG
flows.
11
Sector Outlook Positive
Natural Gas Utilities
FY11 FY12 FY13 FY14 FY15 FY16 FY17
Net domestic gas available 119 110
Less: Fert & Power offtake 89 88
Net Gas available 30 22
(-) CGD, CNG, Court mandated Cons. 8 7
(-) Fixed for Industries 5
Net addnl available for priority 22 10
Additional Availability (assumed ) - - - 8 8 8 8
Total Dom. Gas availability 22 10 - 8 8 8 8
Consumption of Fertiliser Sector
(a) Switching LSHS/FO & Naphtha 3.8 4.0 2.2
(b) Debottlenecking 1.0 2.0 1.0
(c) New plants 4.0 7.0 3.0
Total Addnl Req. 4.8 6.0 7.2 7.0 3.0
Domestic Gas 33 32 36 40 46 51 53
Imported R-LNG 7 8 9.2 10.7 12.5 14.2 15.0
Total 40 40 44.8 50.8 58.0 65.0 68.0
Proportion of R-LNG 17% 20% 21% 21% 22% 22% 22%
Net Dom. Gas available after Fert. 10.0 -3.6 3.5 2.6 2.7 5.8
Consumption of Power Sector
Total Addnl. Req. (New Plants) - 16 26 16 3 - -
Proportion of R-LNG 9% 15% 26% 26% 24% 25% 27%
Source: Inter-ministerial committee‘s final report on gas pooling
Under a reasonable scenario it assumes an
incremental natural gas prodn. of 8mmscmd p.a
The committee recommends usage of R-LNG to the
extent of ~20% - 22% of the overall demand
Fertiliser/Power projects cannot progress without LNG; Gas potential of 28mmscmd in Fertiliser ~22% to be met from RLNG – Positive for PLNG and GAIL
Incremental gas demand from ~12GW of power
capacity due for completion over FY12 – FY15
The final report’s workings shows preferential allocation of dom. gas to Fertiliser followed by Power sector and recommends usage of R-LNG to the tune of
~21%-22% in the fertiliser sector. The workings (below) gives the actual requirement of Fertiliser and Power sector and how it could be met.
Current gas availability after meeting the req. of the
priority sectors is 22 mmscmd, which is being used
for CNG and other Industries/Refineries. The
committee recommends to restrict the allocation
for CNG to 7mmsmcd and Industries to 5mmsmcd.
The balance 10mmsmcd to be used in the Fertiliser
sector
Overall gas potential of 28mmscmd over FY12-16
The committee recommends a R-LNG mix of 25%-27% in the power sector.
12
Sector Outlook Positive
Natural Gas Utilities
At $9/mmbtu Urea prodn. ($420/tonne) is much cheaper than imports
Source: BPCL, FAI, Spark Capital Research
• Gas cons. in fertiliser sector is set to increase from 40mmscmd to 68mmscmd
(FY17) backed by conversion/debottlenecking/new projects
• The final Inter-minist. Committee report on gas pooling has suggested that
22% of gas requirements in the on-going projects to be met by R-LNG
• Imported urea prices have rallied by ~50% over the last 6 months. Based on
our workings at a pooled price of $9/mmbtu the cost of prodn. works out to
$400-$420/tonne vs imported price of $560/tonne – makes a strong case for
RLNG usage
• Govt. is proposing to decontrol urea and to bring it inline with NBS, once
approved by CCEA this would increase the appetite for R-LNG in this sector
• The conversion process in north India based FO units are progressing on
track. South based units like Madras fertilizer are almost done with conversion
and can switch to gas as and when supply and infra emerge
Fertilizer: Surging imported urea prices; recommendations for 22% LNG usage; and
decontrol of urea pricing to push implementation of projects
0
100
200
300
400
500
600
700
800
900
$6 $7 $8 $9 $767 $1,085
N.Gas $/mmbtu Fuel Oil $/MT
Naphtha $/MT
$ /t
on
ne (fo
r various
inputs
)
100% savingsImported Cost of Urea $570 (FOB+Ship.+Others)
List of Fertiliser plants
Urea Plants Fuel Capacity
('000 MT) Status
Gas Req.
(mmscmd)
Existing Gas based Plants N. Gas 17,130 40
NFL, Panipat (Haryana) Fuel Oil 512 COD Jan'13
NFL, Nangal (Punjab) Fuel Oil 479 COD Jan'13
NFL, Bhatinda (Punjab) Fuel Oil 512 COD Jan'13
GNVFC, Bharuch (Guj.) Fuel Oil 636 COD 4QFY12
SPIC (Tuticorin) Naphtha 620
Madras Fertilisers, Manali Naphtha 486 COD Dec'12
MCFL, Mangalore Naphtha 380
Zuari Nagar (Goa) Naphtha 399
FACT – Udyogamandal Naphtha 330
Total Naphtha & FO plants 4,354 10
Total Operating Capacity 21,483 50
Debottlenecking/ Revamp Fuel Capacity
('000 MT) Status
Gas Req.
(mmscmd)
CFCL, Gadepan I (Raj.) N. Gas 158
CFCL, Gadepan II (Raj.) N. Gas 125
IGFL, Jagdishpur (U.P.) N. Gas 244
KRIBHCO, Hazira, (Guj.) N. Gas 466
RCF, Thal (Mah.) N. Gas 450
NFL, Vijaipur I (M.P.) N. Gas 135
NFL, Vijaipur II (M.P.) N. Gas 224
1,802 4
New Plants (COD FY15-17) 14
Total Addl. Gas Requirement 28
Total Gas Requirement (FY17) 68
Source: Inter. Min committee report on gas pooling, FAI, Spark Capital Research
13
Sector Outlook Positive
Natural Gas Utilities
PLF’s to tread lower given challenges on supply/pricing
Year
Gas based -
Installed Capacity
(GW)
Gas req. @90% PLF
(mmscmd)
Gas Supply
(mmscmd) PLF%
FY 10 15,769 78 55 64%
FY 11 17,652 86 62 65%
FY 12 21,055 103 62 54%
FY 13 24,323 119 66 50%
FY 14 25,505 125 72 52%
FY 15 27,005 132 80 54%
FY 16 28,505 140 80 52%
Source: CEA, Industry Statistics, Company data, Spark Capital Research
Large additions on yesteryear gas promises; Fuel a challenge now !
State Plant
Capacity
(MW) COD
Gas Req.
(mmscmd) Fuel Source
Delhi Pragati III Power 1,500 2012 7.4 GAIL, IOCL &
BPCL - 2 each
Delhi Rithala CCPP 108 2012 0.5 0.6 from KG - D6
Gujarat Hazira/Pipavav 1,053 2012 5.2 FSA – GSPC
AP Lanco - Kondapalli 742 2012 3.6 KG - D6 ?
AP GMR - Rajahmundry 768 2012 3.8 KG - D6 ?
Assam Assam Power 100 2013 0.5 0.6 from Oil India
AP Reliance - Samalkot 2,400 2013 11.8 KG - D6 ?
Gujarat Torrent - SUGEN 382 2014 1.9 KG - D6 ?
Gujarat Torrent - Dahej 800 2014 3.9 KG - D6 ?
7,853 38.5
Source: Company data, CEA, Spark Capital Research
• Gas offtake in the power sector will remain muted given the declining
KGD6 supplies, lack of other sizeable additional supplies and unviable
R-LNG economics as compared to coal. (See table below)
• The final report on gas pooling highlights that new gas based plants are
required to have atleast 85% PPA for dom. gas allocation. This in our view
raises questions for the allocation of gas to existing merchant units like
Lanco, GMR and Torrent
• The inter-mini. Committee’s final report on gas pooling recommends usage of
R-LNG to the extent of 25%-27% for the new plants. Based on our workings
at 25% ($15/mmbtu) R-LNG mix the cost of power would be Rs. 4/kwh, which
we believe would be a challenge to sell. Hence, we have conservatively
taken a much lower demand from the power sector than assumed in the final
report and expect to operate at ~50% PLFs.
Power: Committee strongly recommends 25-27% R-LNG – Even this may not solve
the problem
Cost of Power Generation Coal Gas
Fuel Source Domestic Imported Domestic Imported Imported
Landed cost
($/tonne $ /mmbtu) $33 $72 $7 $10 $18
UHV-Coal/LNG (Kcal per
Kg/mmbtu) 2,800 4,000 8,500 9,000 9,000
Heat Rate (Kcal / Kwh) 2,250 2,250 1,900 1,900 1,900
Energy Charge (Rs. Per Kwh) 1.2 1.8 2.4 3.4 6.1
PLF 85% 85% 85% 85% 85%
Fixed Cost (Rs. /Kwh) 1.2 1.2 1.0 1.0 1.0
Cost of Power (Rs. / Kwh) 2.4 3.0 3.4 4.4 7.1
Merchant Rate Rs. 3.5/kwh
Merchant Rate Rs. 4/kwh
Merchant Rate Rs. 4.5/kwh
Source: Spark Capital Research
14
Sector Outlook Positive
Natural Gas Utilities
Supply (MMSCMD) FY10 FY11 FY12E FY13E FY14E FY15E FY16E
Total Onshore 23 23 23 23 23 23 23
Mumbai High 48 48 48 48 48 48 48
KG - D6 42 56 46 45 50 65 75
Panna Mukta Tapti 14 12 14 13 12 12 11
ONGC - 1 2 6 7 7 7
Deen Dayal GSPC - - - - 3 6 8
NEC-25 - - - - - 2 3
Others 2 2 2 2 2 2 2
Total Offshore 107 119 112 114 122 142 154
CBM 0 1 2 4 6 7 8
Total Production 130 143 137 141 151 172 185
Less: Int. Cons, Flaring 17 15 13 14 15 16 16
Less: LPG/C2/C3 extr. 8 8 11 11 11 11 11
Net Supply 105 120 113 116 125 145 158
LNG Imports 33 37 45 59 72 81 108
Total Supply 137 157 158 175 197 226 265
Demand (MMSCMD) FY10 FY11 FY12E FY13E FY14E FY15E FY16E
Power 57 62 62 66 72 80 80
Fertilizers 38 40 42 45 51 58 65
Refinery & Petchem 23 24 26 42 58 71 76
CGD 12 14 19 22 27 30 33
Others 8 17 20 20 20 20 20
Total Demand 137 157 169 195 228 259 274
Deficit - - 9 20 30 33 9
Source: FAI, CEA, PNGRB, MoPNG, Spark Capital Research
KGD6 continues to fall – likely ramp up by 2014; LNG projects continue to march
ahead despite rising R-LNG prices
• We have made changes to our N. gas supply estimates to factor in declining KG-D6 supplies. We expect gas production to remain flattish
(addition of only 8mmscmd) over FY11-14E largely driven by dwindling KG D6 volumes. Supply is likely to pick up again over FY14-16E with
ramp up in KG-D6 and surge in volumes from CBM fields, GSPC KG-basin and ONGC’s marginal fields. Further there can be upsides from
Shale gas and early start of ONGC’s KG-DWN which we are not factoring in our estimates
• Refineries and CGDs continue to lead consumption in a scenario of rising LNG supplies. We expect the Fertiliser sector to join the momentum
if the recommendations of recently placed report are accepted.
• We expect domestic production to grow by only 8mmscmd to
151mmscmd over FY11-14E. (CBM – 5, ONGC/GSPC – 9,
KG D6 – (6))
• KG-D6 production is currently below 45mmscmd as against an
expected output of 60mmscmd by FY11/12. We are factoring a
flattish volume output ~45-50mmscmd over FY11-14 and
expect it to ramp up only by FY15E
• CBM ramp up by players like Essar and Reliance in MP and W.
Bengal would provide addnl. volumes of 5mmscmd by FY14E
• ONGC is likely to add volumes of 6mmscmd by FY14E.
G1/GS15, North Tapti, C Series and arginal fields would be the
likely contributors
• GSPC’s Deen Dayal block is set to come live by mid FY14E,
the volumes are likely to be 3mmscmd and ramp up to
6mmscmd by FY15E
• Oilex’s cambay tight gas fields are under assessment and could
yield 5-6mmscmd of addnl. gas supplies. We have not factored
in any est. yet.
• LNG supply is likely to increase by ~71mmscmd over FY11-
16E, on the back of additional capacities coming on stream.
There could be an upside of 5mmtpa if PLNG’s plan to set up a
terminal on east coast fructifies.
15
Sector Outlook Positive
Natural Gas Utilities
R-LNG Terminals in India (Existing/Under Construction)
Terminals FY 11 FY12E FY13E FY14E FY15E FY16E Remarks
Dahej 10.0 10.0 11.0 13.5 13.5 18.5 Includes 5MMTPA Brownfield expansion
Hazira 3.5 5.0 5.0 5.0 5.0 5.0 Operates on Merchant Basis
Dabhol - - 2.5 2.5 5.0 5.0 Breakwater debottlenecking in FY15
Kochi - - 5.0 5.0 5.0 5.0 2.5MMTPA (Jul’12); 2.5MMTPA (Oct’12)
Mundra - - - - - 5.0 Currently undergoing pre-constrn. activities
Total capacity (MMTPA) 13.5 15.0 23.5 26.0 28.5 38.5
Long Term Supplies (MMTPA) 7.5 7.5 7.5 11.4 11.4 22.5 Qatar -7.5; Australia-1.44 ;Russia -10, BG
Group - 2.5, US - 1.1
Short term Supplies (MMTPA) 2.1 2.7 2.7 - - - GAIL - 0.5 (Marubeni), PLNG - 1.5 (various),
GSPC - 0.7 (Russia,etc.,)
Spot Requirement - 2.3 6.1 8.6 11.1 7.5
Total Est. Throughput (MMTPA) 9.6 12.5 16.3 20.0 22.5 30.0
Source: Company data, News reports, Spark Capital Research
Note: PLNG is at an advanced stage for setting up an LNG terminal in the east coast, which is not considered in the list (COD: FY15/16)
Long term supplies provide support for R-LNG terminal capacity build up..
Suppliers MMTPA Contract Status Contract Start Importer
Rasgas - Qatar 7.5 Contracted On going PLNG
Australia 1.4 Contracted 2014 PLNG
Gazprom - Russia 10.0 HOA 2016 PLNG, GSPC, GAIL & IOC
BG Group - Global Portfolio 2.5 HOA 2014 GSPC
Cheniere - US 1.1 HOA 2016 GAIL
Long term Contracts
(MMTPA) 22.5
Source: Company data, News reports, Spark Capital Research
Recently entered long term
contracts, MoUs and HOA provides a
sturdy ~60% supply visibility to our
estimated LNG capacity of ~38mmtpa
in FY16E. Also GAIL is scouting for
more contracts in Brunei, Russia,
etc., This will further provide cushion
for the on-going projects
The general market perception is
that the winter season (Oct’11 –
Mar’12) will see tightening of
supplies. But given our modest req.
of 2.3/6.1 (FY12E/13E) compared to
an overall spot market of 60-
70MMTPA, India will not find it
challenging to source the same
LNG Supply: Modest spot req. helps in a tight market condition (next 2yrs); Pipeline
of MoUs and HOAs provide long term visibility to upcoming facilities
16
Sector Outlook Positive
Natural Gas Utilities
Global LNG Liquefaction facilities (MMTPA)
Geography CY08 CY09 CY10 CY11E CY12E CY13E CY14E CY15E CY16E
Atlantic Basin 78 78 78 78 92 92 99 115 138
Middle East 47 74 92 100 100 100 100 100 100
Pacific Basin 77 94 100 104 104 104 122 140 158
Total 202 246 270 282 296 296 321 354 396
New Additions 44 24 12 14 - 25 33 41
Global LNG throughput (MMTPA)
Contracted 142 152 179 193 200 207 235 262 280
Spot 30 30 42 61 73 72 70 75 96
Total 172 182 220 254 272 278 305 337 376
% of Spot 18% 16% 19% 24% 27% 26% 23% 22% 26%
Utilisation 85% 74% 82% 90% 92% 94% 95% 95% 95%
Source: GIIGNL, Bloomberg, News reports, Company data, Spark Capital Research
Spot volumes would remain in the
range of 20-25% of the total
volumes, as ~70% -80% of the
volumes are tied up.
Given India’s spot req. over (CY11-
CY16) is just ~15% of the global
spot availability, we don’t see any
challenge to source these.
Global LNG: Large Capacity additions starting CY14; Sourcing modest spot
requirements (15% of global spot market) would not be a challenge
Very little LNG terminals coming
online in the next two years, but
starting CY14/15, a host of
Australian LNG facilities will come
online.
GAIL is actively scouting for
tying up medium/long term
contracts with more than 5
countries. Recently there were
news reports that GAIL is
looking to invest in LNG
facilities in Algeria. If such an
event happens it will boost the
supply visibility for the country
Upcoming Liquefaction terminals (CY11-14)
Country Project Year
Capacity
(MMTPA) Companies
Qatar Qatargas 2011 7.8 7.0 CNOOC, Petrochina, Centrica
Australia Pluto 2011 4.3 3.8 Tokyo Gas, Kansai Electric
Angola Soya LNG 2012 5.2 -
Algeria Azrew / Skikda 2012 9.2 7.5 GDF SUEZ - France
PN Guinea PNG LNG 2014 6.6 6.6 Sinopec, TEPCO, Osaka, CPC
Australia QGC Curtis 1 2014 4.3 4.0 Pow er Gas - S'pore
Australia Gladstone 1 2014 3.9 3.9 Kogas, Petronas
Australia Gorgon T1 / T2 2014 10.0 10.0 Petrochina, PLNG, Japan Utils.
Contracted (MMTPA
Sector Outlook Positive
Natural Gas Utilities
Pipelines under construction
Company Project
Approved Cost
(Rs. bn)
Capex upto
July’11 COD
Scheduled
progress %
Actual
Progress %
GAIL Vijaipur – Dadri 38
68
Commissioned
GAIL Dahej - Vijaipur 44 Dec’11 94 95
GAIL Compressor Stn at Jhabua & Vijaipur 14 Commissioned
GAIL Compressor Stn at Kailaras & Chainsa 12 Dec’11 85 84
GAIL Dadri - Bawana 6 14
Commissioned 91 89
GAIL Bawana Nangal 18 Jan’12/Jul’12
GAIL Dhabol Bangalore - Phase I 45 9
Aug'12 54 70
GAIL Dhabol Bangalore - Phase II 5 Dec'12
GAIL Chainsa – Jhajjar – Hissar (Jhajjar – Hissar
on hold) 13 6.4 Dec’11 NA NA
GAIL Kochi - Kootanad - M'lore - B'lore: Phase I 4 1.5
Aug'12 60 70
GAIL Kochi - Kootanad - M'lore - B'lore: Phase II 29 Mar'13
GAIL Haldia Jagdsihpur: Phase I 67 NA
Dec'13 Detailed Survey Completed
GAIL Haldia Jagdsihpur: Phase II 10 Dec'14
GSPL Mallawaram – Bhilwara 65 2015
Detailed Design and pre-constrn.
activities being undertaken GSPL Mehsana – Bhatinda 45 2015
GSPL Bhatinda - Jammu Srinagar 12 2015
Source: GAIL’s performance report to MoPNG –Sep’11, Company data, Spark Capital Research
R-LNG terminals under construction
Company Terminal
Capacity
(mmtpa) COD Remarks
PLNG Kochi 5.0 Oct'12 Physical progress – 89%; on track
GAIL Dabhol - Phase I 2.5 Mar'12 Storage Tanks completed ; currently under
testing
GAIL Dabhol - Phase II 2.5 Sep'14 Breakwater tender awarded, dredging work to
start in Jan'12
Source: Company data, Spark Capital Research
Pipeline / R-LNG terminals projects mostly on track
18
Sector Outlook Positive
Natural Gas Utilities Recent meeting with officials in PNGRB: Team reshuffle to linger rollouts of
authorisation over near term
Currently the PNGRB board consists of: Mr. Man Singh (Chairman), Mr. YPC Dangay (Member-Legal) and Ms. Sudha
Mahalingam (Member-Distribution). Member-Technical and Member-Commercial positions are vacant.
The retiring chairman is likely to be replaced by Mr. Krishnan (Ex Fertilizer Secy.), additionally Mr. K.K.Jha (IOCL Director-
Pipelines) has been selected as Member-Technical, but would be joining only in Jan’12. Mr. Bishnoi (the Chairman and MD
of Rashtriya Ispat Nigam Ltd) has been selected as Member-Commercial, but his application has been stuck in CVC
clearance.
New team
PNGRB recently extended the closing date of 4th round bid to November. Further, PNGRB is introducing some norms to
increase hygiene in the bidding process and avoid zero/irrational bidding – this may further extend the bid closure date.
We believe that the evaluation and award of 4th round bids may take more than 6 months after the closure of bid given the
new composition of the board.
Delay in 4th Round
bidding
PNGRB is currently working on to finalise GSPL’s capacity in its Gujarat network, post which the process of network
authorisation and tariff approval would begin. Given the current reshuffle in the board, we believe the authorisation could
take atleast a year.
Negative for GSPL stock; Tariff overhang may persist in near term.
GSPL’s Gujarat network
authorisation
Authorisation for Gujarat Gas existing network is likely to be approved in another 15-20 days.
Positive trigger for Gujarat Gas Stock as the application includes new areas surrounding its core operational regions (Surat,
Bharuch and Ankleshwar) which could provide growth opportunities
Gujarat Gas network
authorization
IGL’s contention is that Delhi region was authorised by PNGRB in Jan 2009 when the later was not empowered to do so.
Since PNGRB got empowered only in July 2010 when section 16 was notified, the three year marketing exclusivity for Delhi
should be considered starting July 2010. However, PNGRB declined to comment anything on this matter for the moment. If
PNGRB accepts IGL’s submission, it would be a positive trigger for the stock.
IGL’s submission for
extension of marketing
exclusivity
19
Sector Outlook Positive
Natural Gas Utilities
20
Natural Gas Utilities Sector – All numbers in Rs mn except per share data
Quarter Change
Comments / Watch out for
Recommendation
Sep-11 Jun-11 Sep-10 yoy qoq Absolute Relative
GAIL
Net Sales 97,095 88,674 81,041 20% 9% We expect gas transm. volumes of 118mmscmd flat qoq as declining KG-D6
is partly offset by R-LNG; We expect tariff of Rs. 890/mscm vs Rs. 881/mscm
in 1Q. Expect subsidy of Rs. 5.6bn for 2Q vs Rs. 6.8bn in 1Q BUY O-PF EBITDA 15,825 15,556 14,329 10% 2%
PAT 9,906 9,847 9,235 7% 1%
EPS 7.8 7.8 7.3 7% 1%
GGAS
Volumes (mmscm) 327 302 315 4% 8% After three qtrs of Nil growth we expect qoq volumes to grow by 8% driven
primarily by some LFR customers which were deferring decisions uptill now.
Gross spreads for 3QCY11 at Rs. 5.4/scm vs Rs. 5.9/scm in 2QCY11. It
would further come down owing to higher R-LNG prices, declining cheap
domestic gas and strengthening dollar
REDUCE U-PF Net Sales 6,610 5,766 4,985 33% 15%
EBITDA 1,402 1,403 903 55% 0%
PAT 910 960 561 62% -5%
EPS 7.1 7.5 4.4 62% -5%
GSPL
Volumes (mmscm) 3,215 3,345 3,250 -1% -4% We expect lower qoq volumes (4%) due to declining KG-D6 supplies, rising R-
LNG forcing power plants to operate at lower PLFs and lower offtake from
RIL, marginally offset by growth in other segments
Estimate tariff of Rs. 800/mscm for 2Q vs Rs. 813/mscm in 1Q; Items below
EBITDA are not comparable due to change in depreciation policy
REDUCE U-PF Net Sales 2,686 2,876 2,545 6% -7%
EBITDA 2,485 2,652 2,336 6% -6%
PAT 1,171 1,374 915 28% -15%
EPS 2.1 2.4 1.6 28% -15%
IGL
Volumes (mmscm) 294 282 246 20% 4% We expect 4% qoq volume growth due to opening of new CNG stations and
higher growth in the industrial segment. Est. gross spreads for 2Q at Rs.
8.5/scm vs 8.4/scm in 1Q, higher driven by addnl. allocation of 0.3mmscmd
from GOI, offset by decline in KG D6 supplies, rising R-LNG prices and
strengthening dollar.
ADD O-PF Net Sales 5,856 5,364 4,451 32% 9%
EBITDA 1,638 1,573 1,230 33% 4%
PAT 812 801 663 22% 1%
EPS 5.8 5.7 4.7 22% 1%
PLNG
Volumes (TBTU) 131 133 100 31% -2% Expect marginally lower volumes due to maintenance shutdown (2-3 days)
and monsoons; Mktg. margins on spot volumes (5% of total volumes) is likely
to be lower ($0.2/mmbu) than the prev qtr ($0.5/mmbtu). Overall, we expect
blended tariffs at 35.3/mmbtu for 2Q vs Rs. 36.8/mmbtu in the previous qtr. BUY O-PF
Net Sales 52,426 46,233 30,577 71% 13%
EBITDA 4,085 4,381 2,716 50% -7%
PAT 2,291 2,567 1,311 75% -11%
EPS 3.1 3.4 1.8 75% -11%
Preview – 2QFY12
Petronet LNG Relative
Absolute Buy
Outperform Target
CMP Rs. 158
Rs. 190
21
Rating: ▲ Target price: ▲ EPS: ▲
Find Spark research on Bloomberg (SPAK <go>), Thomson First Call, Reuters Knowledge and Factset
Date Oct 12, 2011
Market Data
SENSEX 16536
Nifty 4974
Bloomberg PLNG IN
Shares o/s 750mn
Market Cap Rs. 118bn
52-wk High-Low Rs. 186-105
3m Avg. Daily Vol Rs. 586mn
Index member BSE OIL & GAS
Latest shareholding (%)
Promoters 50.0
Institutions 21.6
Public 28.4
Financial summary
Year Revenue (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EPS (Rs.) P/E(x) EV/EBITDA (x)
FY11 131,973 12,163 6,196 8.3 19.1x 12.3x
FY12E 216,743 16,813 9,075 12.1 13.1x 9.6x
FY13E 312,051 20,326 9,716 13.0 12.2x 7.9x
Mayur Patel, CFA
mayur@sparkcapital.in
+91 44 4344 0037
Vishnu Kumar A S
vishnu@sparkcapital.in
+91 44 4344 0069
Stock performance (%)
1m 3m 12m
PLNG -10% 10% 40%
Sensex -2% -12% -18%
BSEO&G 0% -4% -20%
LNG – Against all odds; 10% correction gives an opportunity; Upgrade to Buy – OPF The stock recently corrected by around 10%, owing to concerns on rising R-LNG prices impacting PLNG’s spot
volumes and risks to high marketing margins. Based on our recent interaction with the Mgmt. and our channel
checks, we believe R-LNG continues to find favour with Refineries/Industries/CGDs even at $19-$20/mmbtu
(especially Naptha/Petrol/Diesel replacement) and there are no material risks on short term/spot volumes of
2mmtpa in the near term. PLNG earned high marketing margins (~$0.5) on spot volumes (~0.5mmtpa) in 1Q
driven by one-off events. This is likely to normalise over the ensuing quarters to $0.20 levels; and fixed
marketing margins ($0.20-$0.25) on short term contracts of 1.5mmtpa (1.5 years) would continue to cushion near
term profitability. Upgrade to Buy - OPF
Investment Rationale:
• Strong Volumes: Volumes are likely to remain above 10mmtpa over the ensuing quarters. 2Q volumes may be
slightly lower than 1Q (104% throughput) due to maintenance shutdown (2-3 days) and monsoons
• Substitution economics vs alt fuels: R-LNG prices at $19-20/mmbtu (delivered prices) are almost at par with
FO/LSHS ($18-$20), but still much cheaper than Naphtha ($26-$28/mmbtu). Our interactions with Refineries suggests
that some refineries (Essar and RIL) are using internally generated FO/LSHS instead of gas, but continue to use gas
to replace Naphtha
• Mktg. margins: Margins on short term contracts (1.5mmtpa) are fixed ($0.20-$0.25/mmbtu) for the next 1.5 years.
Marketing margins ($0.5) on spot volumes of 0.5mmtpa to normalise to ~$0.20 levels over ensuing quarters
• Projects: Second Jetty (COD–2QFY14) and Kochi project (3QFY12) are on track. The company is seriously
evaluating the option to set up a 5mmtpa terminal on the East Coast and is yet to zero in on a location (AP/Orissa)
We have slightly increased our earlier (conservative) margin est. to factor in continuity of marketing margins
($0.25/mmbtu) on short term (1.5mmtpa for 1.5years). PLNG has a slew of expansion in its pipeline, growing its capacity
from 10mmtpa to 18mmtpa by FY14E. The Dahej brownfield expansion will further raise the capacity to 23mmtpa by
FY15/16. Despite the huge capex requirement, OCF from existing business (>Rs. 12bn p.a) and likely funding from
advances will restrict leverage to around 1x levels. PLNG is an excellent growth story and we like the stock given the long
term R-LNG outlook; no regulatory interventions; first mover advantage; inspiring fundamentals and on-track progress in
various projects. We upgrade PLNG to Buy-OPF with a DCF based TP of Rs. 190.
Petronet LNG Relative
Absolute Buy
Outperform Target
CMP Rs. 158
Rs. 190
22
Mgmt. meeting and channel checks - Key takeaways
Marketing Margins: locked in margins on short term contracts to alleviate concerns on sustainability of marketing margins
• Marketing margins (over and above regas charges of Rs. 33.3/mmbtu which are earned on long term contracts) on short term/spot volumes are likely to
remain for a while and boost profitability. We expect blended tariffs (incl. mktg. margins) of Rs.35.3/mmbtu in 2Q vs. Rs.36.5 in 1Q.
• PLNG’s short term contracts have two components – Short term (~15% of capacity) and Spot (~5% of capacity). The marketing margins (~$0.20-
$25/mmbtu) on the short term contracts are fixed for the next 1.5years. On spot volumes the company makes margins which vary with every cargo. In
1QFY12 margins on spot cargoes were phenomenally high at $0.50/mmbtu due to availability of cargoes at distressed valuation and resilient markets – We
expect this to come down to sub $0.20 in this quarter owing to stubbornly rising LNG prices
Particulars FY11 FY12E FY13E Q1 12 Q2 12E Q3 12E Q4 12E
Volumes
Dahej - Long term 7.5 7.5 7.5 1.7 1.9 2.0 2.0
Dahej - Short Term - 1.3 1.5 0.4 0.3 0.3 0.3
Dahej - Spot 0.6 0.6 1.0 0.2 0.1 0.1 0.2
Dahej - Third party regas (GSPC,GAIL) 0.6 1.2 0.5 0.4 0.3 0.3 0.3
Kochi - - 1.0 - - - -
Total (mmtpa) 8.6 10.5 11.5 2.6 2.6 2.7 2.7
Tariff including marketing margins (Rs. /mmbtu)
Dahej - Long term 32.2 33.8 35.5 33.3 33.3 33.3 35.0
Dahej - Short Term - 45.9 45.9 45.9 45.9 45.9 45.9
Dahej - Spot 24.7 46.4 40.0 56.0 42.0 42.0 42.0
Dahej - Third party regas (GSPC,GAIL) 32.2 33.8 35.5 33.4 33.3 33.3 35.0
Kochi - - 65.0 - - - -
Blended Tariff (Rs. /mmbtu) 31.68 35.94 39.78 36.76 35.29 35.14 36.62
Marketing Margins charged over and above regas charges of Rs. 33 ($0.74/mmbtu)
Short term ($/mmbtu) $0.27 $0.23 $0.28 $0.28 $0.28 $0.24
Spot ($/mmbtu) $0.28 $0.10 $0.50 $0.19 $0.19 $0.16
Total $0.27 $0.18 $0.35 $0.25 $0.25 $0.21
Refinery Status Check: FO/LSHS replacement (~25%-30%) tepid, while Naphtha/Diesel replacement (~70%-75%) continues to remain strong
• Essar Oil – Cons. of N. gas has dropped from ~0.7mmscmd to ~0.4mmscmd due to a shift to FO/LSHS. The company does not have an active market for
FO/LSHS and hence prefers to use these whenever cost savings emerge.
• Reliance – N. gas cons. has dropped from 9mmscmd to ~7mmscmd due to shift to FO/LSHS. However, gas continues to replace Naphtha/Diesel
• HPCL (Mumbai) – Refinery is currently using N.gas for Naphtha and in CPP(Power plant); studies are being undertaken for replacign FO/LSHS to N.gas.
• BPCL (Mumbai) – Refinery is consuming 1.2mmscmd of N.gas and there is no signs to shift back to FO/LSHS
• IOCL – Mathura, Panipat, Koyali together consume about 5mmscmd and there are no signs to shift back to FO/LSHS. Mathura has environ. mandate to use
R-LNG irrespective of prices.
Petronet LNG Relative
Absolute Buy
Outperform Target
CMP Rs. 158
Rs. 190
Japanese LNG prices hit record highs; $16/mmbtu (CIF)
Source: Bloomberg, Spark Capital Research
Rising R-LNG prices: Loosing sheen with FO/LSHS; Attractive with
Naphtha
• With spot LNG prices of $14-$15/mmbtu, the delivered prices reach
$19/mmbtu in Gujarat and $20/mmbtu in North India (UP, Punjab, etc)
• At such prices there is very little saving on FO/ LSHS (highlighted in
yellow). The savings on Naphtha continue to remain attractive (~35%)
• Our channel checks with various refineries suggest that economics of
Naphtha replacement remains strong, while FO/LSHS replacement
(20%-25% of req.) is under stress
• Overall despite the recent surge in prices, we do not see major risks
to PLNG’s volumes given: (1) 75% of their capacities are long term
volumes (2) 15% are locked for 1.5 years and (3) the rest spot and
regas volumes are not sizeable
Not much savings on FO/LSHS; ~30% savings on Naphtha
Source: BPCL, Bloomberg, Spark Capital Research. Petrol & Diesel prices at Delhi
Spot R-LNG delivered price at $19-$20/mmbtu
Source: News reports, Company data, Spark Capital Research.
* Guj. - GSPL tariff of Rs. 800/mscm; Outside Guj. highest tariff of DVPL upg Rs. 1900/mscm
$/mmbtu Gujarat North India
FOB 14.0 14.0
Shipping cost 0.5 0.5
CIF Price 14.5 14.5
Import duty @ 5.15% 0.7 0.7
CIF Price (incl. tax) at Terminal 15.2 15.2
Re-gas tariff (Rs. 34/mmbtu) 0.74 0.74
Ex Terminal 16.0 16.0
VAT @15% 2.4 2.4
Marketing margins of PLNG 0.3 0.3
Pipeline tariff (max) including service tax of
10%* 0.5 1.3
Delivered Price 19.2 19.9
Fuel Fuel Oil LSHS Naphtha Deisel Petrol
Price $/MT 767 799 1,086 1,054 1,706
Kcal / Kg 10,500 10,000 10,500 9,500 11,250
Equiv.Cost
($/mbbtu) 18 20 26 28 38
Spot price
($/mmbtu) 20.0 20.0 20.0 20.0 20.0
Savings -8% 1% 30% 40% 91%
$10.9 $11.2 $11.0 $12.0
$13.8
$16.0 $16.5 $16.5
$15.0
$6
$10
$14
$18
1QFY11 3QFY11 1QFY12 3QFY12E 1QFY13E
Japan LNG price ($/mmbtu)
Spot R-LNG to remain high
as Japan & Korea would
draw more N.gas during
winter (Oct’11-Mar’12)
Petronet LNG Relative
Absolute Buy
Outperform Target
CMP Rs. 158
Rs. 190
31 32 34 35 37
6 25
46 43
40
65 65 65
25
32 36
40 42
0
10
20
30
40
50
60
70
FY10 FY11 FY12E FY13E FY14E
Long term (Rs./mmbtu) Spot/Short term (Rs./mmbtu)
Kochi (Rs./mmbtu) Blended (Rs./mmbtu)
Strong Regas margins on Spot/Short to boost FY12 blended tariff
Source: Company, Spark Capital Research
5.7 7.5 7.5 7.5 7.5
1.9
0.6 0.6 1.0
3.5
0.3 0.6 1.2 0.5
0.5
1.0
2.0
-
2
4
6
8
10
12
14
FY10 FY11 FY12E FY13E FY14E
Kochi (mmtpa) Regas (mmtpa) Short/Spot term (mmtpa) Long term (mmtpa)
CAGR Vol. growth 16% (FY11-14E): Kochi to reach 40% util. by FY14E
Source: Company, Spark Capital Research
CAGR Growth (FY11-14E): EBITDA =28%; PAT = 23%
Source: Company, Spark Capital Research
Source: Company, Spark Capital Research
24
Key estimate revision
FY12E FY13E
Old New Change Old New Change
Volumes
(mmtpa) 10.4 10.5 1% 11.5 11.5 0%
Blended Tariff
(Rs. /mmbtu) 35.3 36.0 2% 38.6 39.8 3%
EBITDA (Rs. mn) 16,372 16,813 3% 19,711 20,326 3%
PAT (Rs. mn) 8,524 9,075 6% 9,233 9,716 5%
EPS (Rs.) 11.4 12.1 6% 12.3 13.0 5%
Business Overview
Jump in Mktg.
margins on
Short/spot term.
4 6
9 10 12
8
12
17
20
25
0
5
10
15
20
25
30
FY 10 FY 11 FY 12E FY 13E FY 14E
PAT (Rs. Bn) EBITDA (Rs. Bn)
Petronet LNG Relative
Absolute Buy
Outperform Target
CMP Rs. 158
Rs. 190 Valuation
25
Key DCF estimates
Rs. mn Mar-12
WACC 12%
Terminal Growth Rate 0%
Total firm Value (Rs. Mn) 174,044
Net debt / (cash) (Rs. Mn) 31,445
Equity Value (Rs. Mn) 142,599
Shares O/s (Nos. Mn) 750
Target Price (Rs. /Share) 190
Current trading Multiples
FY11 FY12E FY13E
EPS (Rs.) 8.3 12.1 13.0
P/E (x) 18.8x 12.8x 12.0x
P/B (x) 4.3x 3.5x 2.8x
EV/EBITDA (x) 11.1x 8.0x 6.7x
Implied Target Multiples
FY11 FY12E FY13E
8.3 12.1 13.0
23.0x 15.7x 14.7x
5.3x 4.2x 3.5x
13.3x 9.6x 7.9x
WACC
Term
ina
l Gro
wth
10% 11% 12% 13% 14%
0.0% 244 214 190 170 152
0.5% 251 220 194 173 155
1.0% 259 226 199 177 158
1.5% 268 233 204 181 161
2.0% 279 241 210 185 164
Key estimates
Particulars FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY21E FY22E
Dahej 9.2 9.0 11.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5
Kochi - 1.0 2.0 3.0 4.0 4.5 4.5 4.5 4.5 4.5 4.5
Volume (MMTPA) 9.2 10.0 13.5 15.5 16.5 17.0 17.0 17.0 17.0 17.0 17.0
Revenue ($/mmbtu) $8.75 $11.57 $13.03 $13.41 $13.48 $13.48 $13.44 $13.44 $13.44 $13.44 $13.44
Dahej - Regas Tariff (Rs./mmbtu) 35.9 39.8 42.1 43.4 44.7 45.3 45.3 45.3 45.3 45.3 45.3
Kochi - Regas tariff (Rs./mmbtu) - - 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0 65.0
Blended Regas (Rs./mmbtu) 35.9 35.8 45.5 47.6 49.6 50.5 50.5 50.5 50.5 50.5 50.5
NOPAT (Rs. Mn) 9,985 11,384 13,842 16,671 18,574 19,509 19,533 19,501 19,469 19,437 19,437
Depreciation (Rs. Mn) 1,910 3,336 4,569 4,893 4,940 4,988 5,036 5,084 5,131 5,179 5,179
Capex +WC Chgs (Rs. Mn) 22,097 10,476 1,803 1,268 1,070 979 900 900 900 900 900
FCFF (Rs. Mn) (10,202) 4,243 16,608 20,296 22,444 23,519 23,668 23,684 23,700 23,716 23,716
PV of FCFF as on March 2012 (Rs. Mn) - 3,795 13,285 14,517 14,356 13,452 12,106 10,833 9,693 8,674 7,756
Petronet LNG Relative
Absolute Buy
Outperform Target
CMP Rs. 158
Rs. 190
26
Financial Summary
Rs. mn FY 10 FY 11 FY 12E FY13E FY 10 FY 11 FY 12E FY13E
Revenues 106,491 131,973 216,743 312,051 Sales 26.3% 23.9% 64.2% 44.0%
EBITDA 8,465 12,163 16,813 20,326 EBITDA -6.1% 43.7% 38.2% 20.9%
Depreciation 1,609 1,847 1,910 3,336 Adj. Net Profit -22.0% 53.2% 46.5% 7.1%
EBIT 6,856 10,316 14,903 16,991 Margin ratios (%)
Other Income/Exp 978 680 700 500 EBITDA 7.9% 9.2% 7.8% 6.5%
Interest 1,839 1,931 2,154 3,091 EBIT 6.4% 7.8% 6.9% 5.4%
PBT 5,995 9,064 13,449 14,399 Adj. Net Profit 3.8% 4.7% 4.2% 3.1%
Net Profit 4,045 6,196 9,075 9,716 Performance ratios
Adjusted Net Profit 4,045 6,196 9,075 9,716 RoIC (%) 12% 15% 17% 16%
RoE (%) 19% 25% 30% 26%
Shareholders Equity 22,349 26,802 33,690 41,219 RoCE (%) 12% 14% 15% 14%
Total debt 24,998 32,161 46,161 44,161 Sales / Total Assets (x) 2.2 2.3 3.0 3.6
Total Netw orth & Liabilities 50,609 62,443 83,331 88,860 Fixed Assets Turnover (x) 2.8 2.9 3.6 4.2
Net f ixed assets 28,829 27,024 26,114 66,779 Financial stability ratios
CWIP 13,184 22,029 44,029 10,029 Total Debt to Equity (x) 1.12 1.20 1.37 1.1
Investments 5,386 11,649 11,649 11,649 Inventory & Debtor days 17.4 23.6 20.1 20.1
Current assets 12,216 13,875 21,577 28,275 Creditor days 25.5 28.6 30.0 30.0
Current liabilities 9,006 12,134 20,037 27,871 Valuation metrics
Net current assets 3,211 1,741 1,539 404 Current Share Price (Rs.)
Total Assets 50,609 62,443 83,331 88,860 Market Cap (Rs.mn) 118,500 118,500 118,500 118,500
Fully Diluted Shares (mn) 750 750 750 750
Cash flow s from Operations 10,279 9,075 11,887 12,575 Adjusted EPS (Rs.) 5.4 8.3 12.1 13.0
Cash flow s from Investing (12,358) (14,766) (23,000) (10,000) P/E (x) 29.3 19.1 13.1 12.2
Cash flow s from Financing (1,094) 3,826 12,251 (4,186) P/B (x) 5.3 4.4 3.5 2.9
Cash Generated (3,173) (1,865) 1,138 (1,612) EV (Rs.mn) 140,093 149,121 161,983 161,594
Opening Cash 6,578 3,405 1,540 2,679 EV/ EBITDA (x) 16.6 12.3 9.6 7.9
Closing Cash 3,405 1,540 2,679 1,067 Dividend Yield (%) 1.1% 1.3% 1.6% 1.58%
Cash Flows
Growth ratios (%)
Abridged Financial Statements Key metrics
158
Profit & Loss
Balance Sheet
GAIL Relative
Absolute Buy
Outperform Target
CMP Rs. 417
Rs. 541
27
Rating: ◄► Target price: ▼ EPS: ▼
Find Spark research on Bloomberg (SPAK <go>), Thomson First Call, Reuters Knowledge and Factset
Date Oct 12, 2011
Market Data
SENSEX 16536
Nifty 4974
Bloomberg GAIL IN
Shares o/s 1,268mn
Market Cap Rs. 529bn
52-wk High-Low Rs. 538-400
3m Avg. Daily Vol Rs. 475mn
Index member NIFTY
Latest shareholding (%)
Promoters 57.3
Institutions 38.7
Public 4.0
Financial summary
Year Revenue (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EPS (Rs.) P/E(x) P/B(x)
FY11 324,586 54,546 35,611 28.1 14.9x 2.7x
FY12E 370,884 62,114 39,570 31.2 13.4x 2.4x
FY13E 417,844 70,908 41,733 32.9 12.7x 2.1x
Mayur Patel, CFA
mayur@sparkcapital.in
+91 44 4344 0037
Vishnu Kumar A S
vishnu@sparkcapital.in
+91 44 4344 0069
Stock performance (%)
1m 3m 12m
GAIL 1% -10% -17%
Sensex -2% -12% -18%
BSEO&G 0% -4% -20%
Long term defensive play at cheap valuation We have reduced our transmission volume estimates to incorporate declining KGD6 supplies and slightly
reduced gas mktg. margin estimates to factor in rising LNG prices. Despite, rising LNG prices, we remain positive
on the LNG prospects given its impressive economics vs. alt fuels. Our recent meeting with management
suggests that GAIL is very aggressive about LNG marketing in India. Although, tepid transmission volume may
impede stock momentum in the near term, it would generate good returns over medium term as more LNG
capacity come on stream and KGD6 ramps up. We believe that market is more than pricing in the near term
concerns of low RoCEs on new pipelines and undermining the intrinsic value of these upcoming pipelines.
Further, implementation of proposed subsidy reforms may emerge as near term triggers. Reiterate Buy-OPF
Investment rationale
• Massive capex plan of Rs. 300bn to set a platform for long term growth; Pick up in R-LNG supplies to support
utilisations of new pipelines & drive 8% CAGR growth in Gas Transmission volumes
• Although, highs of gas marketing margins booked in 1QFY12 is not sustainable in current rising lng price scenario, it
would continue to make good margins on LNG cargoes
• PL Projects are mostly on track; Savings in capex related to Vijaipur-Dadri PL is likely to be used for adding more
spurlines. Hence, we see no risk of tariff cut. Dabhol terminal to get delayed by 2-3months (Rev. COD Mar’12 – fully
operational by July-Aug’12) – no changes to estimates as we originally considered 1mmtpa volumes only from FY13
• GAIL has submitted workings to PNGRB for final approval of tariffs of HVJ-GREP-DVPL (prov. approved at ~Rs.
25/mmbtu) and its upgradation (prov. approved tariff ~Rs. 54/mmbtu) as single integrated tariff. If this is approved, it
would boost near term earnings. However, given the current reshuffle in PNGRB these approvals may take some time
• Mgmt. expects fertiliser as the next LNG demand driver. Fertiliser Ministry is in talks with GAIL to secure LNG supply
for its upcoming requirement; Inter-minist committee recommendations of LNG usage are also positive for GAIL
• Steady petchem prices to cushion near term profitability; Doubling of capacity to fuel growth from FY15 onwards
Valuations and View: We expect GAIL to record a PAT growth of 8% CAGR over FY11-14E. It trades at 11.7x FY13E
earnings and 1.9x FY13E book (ex-investments). Our SOTP valuation gives a TP of Rs. 541 implying an upside of 30%.
Risks: Higher than expected subsidy share; Delay in new pipelines/Dabhol terminal; sudden decline in LPG/PE prices;
GAIL Relative
Absolute Buy
Outperform Target
CMP Rs. 417
Rs. 541
Stable earnings - Lower volumes offset by higher realizations and
lower subsidy
Source: Company, Spark Capital Research
28
Business Overview
Gas Transmission: Volumes flat, tariff continues to rise..
Source: Company, Spark Capital Research
Gas trading: Mktg. margins to taper down a bit
Source: Company, Spark Capital Research
Segment wise EBIT: Gas Transmission continues to lead the pack
Source: Company, Spark Capital Research
6 6 5 6 7 7 5 7 7
1 1 1 1
1 1 1
1 1 1 1 0
2 2 2
3 3 3 3 3
4 3
3 2 4 2 3
(1)
1 4 2 2
2
(1)
2 2
-5
0
5
10
15
20
2QFY10 4QFY10 2QFY11 4QFY11 2QFY12E
Gas Transmission (Rs. bn) LPG Transmission (Rs.bn)
Gas Trading (Rs. bn) Petrochemical Business (Rs. bn)
LPG & Liq. Hydro. (Subsidy) (Rs. bn) Others
81 81
84 85
79
83 86
83 82
148 158
51
204 220
268
351
416
348
-
50
100
150
200
250
300
350
400
450
74
76
78
80
82
84
86
88
2QFY10 4QFY10 2QFY11 4QFY11 2QFY12E
Volumes (mmscmd) EBIT (Rs. /mscm) (RHS)
106109
115 116 115120 120
117 118
864 850
716
848 927 907
842 881 890
-
200
400
600
800
1,000
95
100
105
110
115
120
125
2QFY10 4QFY10 2QFY11 4QFY11 2QFY12E
Volumes (mmscmd) Tariff (Rs. /mscm) (RHS)
7 9 9 9 9 10
8 10 10 10
13 13 13 14 14 12
15 15
0
2
4
6
8
10
12
14
16
2QFY10 4QFY10 2QFY11 4QFY11 2QFY12E
PAT (Rs. bn) EBIT (Rs. bn)
GAIL Relative
Absolute Buy
Outperform Target
CMP Rs. 417
Rs. 541
29
Business Overview (Cont’d)
LPG & OHC: Realisations to inch down as Brent weakens
Source: Company, Spark Capital Research
LPG & OHC segment: Subsidy to come down
Source: Company, Spark Capital Research
Petchem: Volumes to rise qoq, realisation to remain stable
Source: Company, Spark Capital Research
LPG Transmission: Stable performance
Source: Company, Spark Capital Research
88
120109
88107
81
144
88106
$1,491 $1,461
$1,640
$1,585
$1,443
$1,574 $1,573
$1,612 $1,592
$1,300
$1,400
$1,500
$1,600
$1,700
0
40
80
120
160
2QFY10 4QFY10 2QFY11 4QFY11 2QFY12E
Petrochemical Volumes ('000MT) Realisation (US$./MT) (RHS)
728 820 871
788 799 893 857 817 820
1,414 1,415 1,406 1,441 1,428 1,447 1,373 1,398 1,400
500
700
900
1,100
1,300
1,500
0
200
400
600
800
1,000
2QFY10 4QFY10 2QFY11 4QFY11 2QFY12E
Volumes ('000MT) Tariff (Rs. /MT) RHS
379 375
356 356347
331339
349 350
530
669 768 754
668
773
934 955 875
0
200
400
600
800
1000
1200
300
320
340
360
380
400
2QFY10 4QFY10 2QFY11 4QFY11 2QFY12E
LPG Volumes ('000MT) Realisation (US$./MT) (RHS)
-1
1
4
22 2
-1
2 2
4
6
77
56
89
8
-2
0
2
4
6
8
10
2QFY10 4QFY10 2QFY11 4QFY11 2QFY12E
EBIT (Rs. bn) EBIT (Rs. bn) (pre subsidy)
GAIL Relative
Absolute Buy
Outperform Target
CMP Rs. 417
Rs. 541
30
Current Trading Multiples
FY11 FY12E FY13E
EPS - ex cash 25.33 28.46 29.99
PE ex investments 13.8x 12.3x 11.7x
P/B ex investment 2.7x 2.2x 1.9x
EV/EBITDA 9.3x 8.2x 7.7x
Implied Target Multiples
FY11 FY12E FY13E
EPS - ex cash 25.33 28.46 29.99
PE ex investments 18.7x 16.7x 15.8x
P/B ex investment 3.1x 2.7x 2.3x
EV/EBITDA 11.4x 10.0x 8.8x
SOTP Valuation - GAIL Target
Mcap (Rs. bn) Per Share (Rs.) Remarks Implied EV/EBITDA (FY13E)
Natural gas transmission 341 269 DCF - WACC 11.6%; terminal gr 2% 10.08
Natural gas trading 99 78 DCF - WACC 11.6%; terminal gr 2% 9.53
Petrochemical 102 80 7x FY13E EBITDA 7.00
LPG 59 47 6x FY13E EBITDA 6.00
LPG Transmission 22 17 6x FY13E EBITDA 6.00
E&P Investments 20 16 Valued at 0.85x BV
Investments 85 67 Quoted Investments at CMP, rest at BV (less 20%
cons. Discount)
Total - EV 728 574 9.53
Less: Net debt/(cash) 42 33 FY13E debt
Equity Value - target 686 541
CMP 529 417
Upside 30%
Source: Spark Capital Research
Key estimate revisions
FY12E FY13E
Old New Change Old New Change
Natural Gas
- Transm. Volumes (mmscmd) 123 120 -2% 140 130 -7%
- Avg. Tariff (Rs. /mscm) 914 889 -3% 972 951 -2%
- marketing volumes (mmscmd) 84 84 0% 88 86 -2%
- marketing margins (Rs. /mscm) 335 314 -6% 359 333 -7%
Petrochemical
- PE sales volumes (000 MT) 440 440 0% 450 450 0%
- Avg. realisation (Rs. /Kg) 71 72 1% 71 72 1%
LPG & OHC
- sales volumes (000 MT) 1,400 1,400 0% 1,420 1,420 0%
- Avg. realisation (Rs./ MT) 40,698 39,842 -2% 40,727 40,306 -1%
LPG Transmission
- Transm. Volumes (000 MT) 3,400 3,400 0% 3,400 3,400 0%
- Avg. Tariff (Rs. /MT) 1,422 1,422 0% 1,422 1,422 0%
Financials
Subsidy (Rs. mn) 23,595 22,770 -3% 20,000 19,500 -3%
Revenue (Rs.mn) 370,814 370,884 0% 423,479 417,844 -1%
EBITDA (Rs.mn) 64,585 62,114 -4% 75,285 70,908 -6%
EBIT (Rs. Mn) 56,900 54,429 -4% 65,270 60,893 -7%
PAT (Rs. Mn) 41,250 39,570 -4% 44,707 41,733 -7%
EPS (Rs.) 32.5 31.2 -4% 35.2 32.9 -7%
Source: Spark Capital Research
Valuation
GAIL Relative
Absolute Buy
Outperform Target
CMP Rs. 417
Rs. 541
31
Financial Summary
Rs. mn FY10 FY11 FY12E FY13E FY10 FY11 FY12E FY13E
Profit & Loss Growth ratios (%)
Revenues 249,964 324,586 370,884 417,844 Sales 4.6% 29.9% 14.3% 12.7%
EBITDA 46,692 54,546 62,114 70,908 EBITDA 15.2% 16.8% 13.9% 14.2%
Depreciation 5,618 6,503 7,685 10,015 Adj. Net Profit 12.0% 13.4% 11.1% 5.5%
EBIT 41,074 48,043 54,429 60,893 Margin ratios (%)
Other Income/Exp 5,411 5,186 5,186 5,500 EBITDA 18.7% 16.8% 16.7% 17.0%
Interest 700 829 1,390 4,986 EBIT 16.4% 14.8% 14.7% 14.6%
PBT 45,785 52,400 58,226 61,407 Adj. Net Profit 12.6% 11.0% 10.7% 10.0%
Net Profit 31,398 35,611 39,570 41,733 Performance ratios
Adjusted Net Profit 31,398 35,611 39,570 41,733 RoIC (%) 22.1% 20.5% 18.0% 15.9%
Balance Sheet RoE (%) 19.9% 19.8% 19.0% 17.4%
Shareholders Equity 167,990 192,533 223,969 256,796 RoCE (%) 18.6% 18.2% 16.7% 14.5%
Total debt 14,804 23,100 46,375 96,075 Sales / Total Assets (x) 1.4 1.5 1.4 1.3
Total Netw orth & Liabilities 196,689 231,966 289,610 375,233 Fixed Assets Turnover (x) 1.9 2.0 1.8 1.6
Net f ixed assets 119,311 134,591 207,936 258,952 Financial stability ratios
CWIP 23,305 48,236 18,236 36,236 Total Debt to Equity (x) 0.1 0.1 0.2 0.4
Investments 20,730 25,825 25,825 25,825 Inventory & Debtor days 28.1 31.0 29.0 29.0
Current assets 137,127 111,462 138,334 167,695 Creditor days 151.5 99.1 99.1 99.1
Current liabilities 103,784 88,149 100,722 113,475 Valuation metrics
Net current assets 33,343 23,313 37,613 54,220 Current Share Price (Rs.)
Total Assets 196,689 231,966 289,610 375,233 Market Cap (Rs.mn) 528,955 528,955 528,955 528,955
Cash Flows Fully Diluted Shares (mn) 1,268 1,268 1,268 1,268
Cash flow s from Operations 46,774 21,436 48,194 54,307 Adjusted EPS (Rs.) 24.8 28.1 31.2 32.9
Cash flow s from Investing (34,162) (41,170) (45,844) (73,530) P/E (x) 16.8 14.9 13.4 12.7
Cash flow s from Financing (5,459) (668) 13,750 35,810 P/B (x) 3.1 2.7 2.4 2.1
Cash Generated 7,154 (20,402) 16,100 16,587 EV (Rs.mn) 484,414 504,916 512,091 545,205
Opening Cash 34,562 41,715 21,314 37,414 EV/ EBITDA (x) 10.4 9.3 8.2 7.7
Closing Cash 41,715 21,314 37,414 54,000 Dividend Yield (%) 1.80% 1.80% 2.16% 2.40%
Abridged Financial Statements Key metrics
417
Indraprastha Gas Relative
Absolute Add
Outperform Target
CMP Rs. 426
Rs. 451
32
Rating: ◄► Target price: ▲ EPS: ▲
Find Spark research on Bloomberg (SPAK <go>), Thomson First Call, Reuters Knowledge and Factset
Date Oct 12, 2011
Market Data
SENSEX 16536
Nifty 4974
Bloomberg IGL IN
Shares o/s 140mn
Market Cap Rs. 60bn
52-wk High-Low Rs. 454-285
3m Avg. Daily Vol Rs. 175mn
Index member BSE 200
Latest shareholding (%)
Promoters 45.0
Institutions 40.4
Public 14.6
Financial summary
Year Revenue (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EPS (Rs.) P/E(x) EV/EBITDA (x)
FY11 17,441 4,923 2,598 18.6 23.0x 12.7x
FY12E 25,019 6,949 3,472 24.8 17.2x 9.0x
FY13E 33,768 8,100 3,938 28.1 15.1x 7.8x
Mayur Patel, CFA
mayur@sparkcapital.in
+91 44 4344 0037
Vishnu Kumar A S
vishnu@sparkcapital.in
+91 44 4344 0069
Stock performance (%)
1m 3m 12m
IGL -4% 11% 36%
Sensex -2% -10% -18%
BSEO&G 0% -4% -20%
Timely price hikes to arrest margin pressures; Pricing power to support Pricey valuations Our recent interaction with the management suggests that IGL is on track to deliver around 20% CAGR volume growth
(FY11-14E), with a good boost from industrial volumes. IGL recently hiked CNG prices by Rs. 2.0/scm, showcasing
strong pricing power, yet again. Gross spreads are likely remain elevated (>Rs. 8.5/scm) in FY12E as price hikes and
merger of cheap APM gas (0.3mmscmd) would more than offset the negatives of lower KG D6 supplies, rising R-LNG
prices and strengthening dollar. Despite the strong market outperformance (+10%) over the last 3 months, the stock
would continue to outperform on strong volume growth and tested pricing power especially in the CNG segment (~80% of
volumes). Reiterate Add – OPF
Investment rationale:
• Volume Growth: Mgmt. expects volume growth of 12%-15% for CNG and 50-60% growth in PNG segment over near
term. The growth in PNG segment will be fuelled predominantly by Industrial volumes. We expect overall volumes to
grow by 22% CAGR over FY11-14E - CNG 12% and PNG growth of 52%
• CNG Stations: The issues related to 60 stations pending approval have been resolved and 10 stations have already
started operations. Remaining are likely to start soon. This would underpin near term volume growth.
• Spreads: Recently, IGL hiked CNG prices by Rs. 2.0/scm on Sep 30th to counter the rising R-LNG prices. Unlike
GGAS, which faces resistance from Indl. customers, the CNG market of IGL is relatively resilient. Gross spreads are
likely to remain at elevated levels (>Rs. 8.5/scm) over subsequent quarters due to recent price hikes and merger of
cheap APM gas (0.3mmscmd) more than offsetting the negatives of rising R-LNG prices and strengthening dollar.
• Exclusivity extension: IGL has asked PNGRB to extend the marketing exclusivity period from Jan’12 to Jul’13 on the
ground that three year exclusivity period should be construed only from the date on which PNGRB was authorised. If
PNGRB accepts IGL’s submission, it would be a positive trigger
• R-LNG Framework agreements: The company has entered into framework agreement with Shell and BP for tying up
long term R-LNG supplies. The details of the agreement are yet to be finalised.
We have increased our material costs estimates to factor in the rising LNG prices and USD and on the other hand
increased our realisation estimates to factor in the recent price hikes. This has resulted in slight expansion in spreads. We
maintain our positive stance on the company with a DCF based TP of Rs. 451 (Rs. 435)
Indraprastha Gas Relative
Absolute Add
Outperform Target
CMP Rs. 426
Rs. 451
CAGR Growth (FY11-14E): EBITDA = 22%; PAT = 18%
Source: Company, Spark Capital Research
Gross spread to remain above Rs. 8.5/scm levels
Source: Company, Spark Capital Research
33
Business Overview
33
Volume Growth CAGR (FY11-FY14E) – CNG =12%; PNG = 50%
Source: Company, Spark Capital Research
Key estimate revision
FY12E FY13E
Old New Change Old New Change
Volumes (mmscm) 1,219 1,219 0.0% 1,433 1,442 0.6%
Gross spread (Rs. /scm) 8.4 8.6 2.1% 8.6 8.6 0.5%
EBITDA (Rs. mn) 23,839 25,019 4.9% 30,694 33,768 10.0%
PAT (Rs. mn)
6,879 6,949 1.0%
7,954 8,100 1.8%
EPS (Rs.) 3,425 3,472 1.4% 3,839 3,938 2.6%
Source: Company, Spark Capital Research
605 695 811
931 1,024 54
87
180
288
417
0
200
400
600
800
1,000
1,200
1,400
1,600
FY09 FY10 FY11E FY12E FY13E
PNG (mmscm) CNG (mmscm)
1,725 2,155
2,598
3,472 3,938
3,001
3,808
4,923
6,949
8,100
0
1,500
3,000
4,500
6,000
7,500
9,000
FY09 FY10 FY11E FY12E FY13E
PAT (Rs. mn) EBITDA (Rs. mn)
5.8 6.0
9.5 11.2
13.9 6.7 7.5
7.7
8.6
8.7 4.5 4.9 5.0
5.7 5.6
2.0
3.0
4.0
5.0
6.0
4.0
8.0
12.0
16.0
20.0
24.0
FY09 FY10 FY11E FY12E FY13E
Gross spread (Rs. /scm) Gas Cost (Rs/ scm) EBITDA (Rs. /scm) (RHS)
Indraprastha Gas Relative
Absolute Add
Outperform Target
CMP Rs. 426
Rs. 451 Valuation
34
DCF Valuation Estimates FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY21E FY22E
CNG (mmscm) 931 1,024 1,154 1,286 1,433 1,547 1,671 1,805 1,949 2,105 2,105
PNG (mmscm) 288 417 626 764 932 1,034 1,148 1,274 1,415 1,570 1,570
Volume (mmscm) 1,219 1,442 1,780 2,050 2,365 2,582 2,819 3,079 3,364 3,675 3,675
Avg. realisation (Rs. /scm) 17.6 20.5 23.4 25.5 26.5 27.6 28.0 28.0 28.3 28.6 29.0
Gross Spread (Rs. / scm) 8.6 8.7 8.6 8.3 8.4 8.2 7.7 7.6 7.5 7.5 7.5
EBITDA (Rs. / scm) 5.7 5.6 5.1 4.7 4.6 4.5 4.0 3.8 3.7 3.7 3.7
NOPAT (Rs. Mn) 3,667 4,193 4,546 4,676 5,399 5,770 5,536 5,884 6,364 7,000 7,000
Depreciation (Rs. Mn) 1,475 1,841 2,265 2,688 2,919 2,958 2,996 3,035 3,073 3,112 3,112
Capex + WC chgs (Rs. Mn) 4,631 5,577 5,597 5,598 618 621 639 (169) 532 453 500
FCFF (Rs. Mn) 512 457 1,213 1,766 7,700 8,106 7,892 9,088 8,905 9,658 9,611
PV of CF Mar’ 2012 (Rs. Mn) 410 977 1,276 4,993 4,717 4,121 4,258 3,743 3,643 3,253
DCF Key estimates
Mar-12
WACC 11.4%
Terminal Growth Rate 2.0%
PV of terminal Value (Rs. Mn) 33,251
Total firm Value (Rs. Mn) 66,524
Net debt / (cash) (Rs. Mn) 3,324
Equity Value (Rs. Mn) 63,199
Shares O/s (Nos. Mn) 140
Target Price (Rs. / Share) 451
Current trading Multiples
FY11 FY12E FY13E
EPS (Rs.) 18.6 24.8 28.1
P/E (x) 23.0 17.2 15.1
P/B (x) 5.9x 4.7x 3.8x
EV/EBITDA (x) 16.4x 12.7x 9.0x
Implied target Multiples
FY11 FY12E FY13E
P/E (x) 24.3 18.2 16.0
P/B (x) 6.3x 5.0x 4.0x
EV/EBITDA (x) 13.4x 9.5x 8.2x
WACC
Term
ina
l G
row
th
9% 10% 11% 12% 13%
1.0%
561
486
425
376
335
1.5%
584
502
438
385
342
2.0%
610
521
451
396
350
2.5%
639
542
467
407
359
3.0%
673
566
484
420
368
Indraprastha Gas Relative
Absolute Add
Outperform Target
CMP Rs. 426
Rs. 451
35
Financial Summary
Key metrics
Rs. mn FY10 FY11 FY12E FY13E FY10 FY11 FY12E FY13E
Profit & Loss Growth ratios (%)
Revenues 10,781 17,441 25,019 33,768 Sales 26.4% 61.8% 43.4% 35.0%
EBITDA 3,808 4,923 6,949 8,100 EBITDA 26.9% 29.3% 41.2% 16.6%
Depreciation 775 1,029 1,475 1,841 Adj. Net Profit 24.9% 20.5% 33.7% 13.4%
EBIT 3,033 3,894 5,473 6,259 Margin ratios (%)
Other Income/Exp 211 95 95 95 EBITDA 35.3% 28.2% 27.8% 24.0%
Interest - 132 424 519 EBIT 28.1% 22.3% 21.9% 18.5%
PBT 3,244 3,857 5,144 5,834 Adj. Net Profit 20.0% 14.9% 13.9% 11.7%
Net Profit 2,155 2,598 3,472 3,938 Performance ratios
Adjusted Net Profit 2,155 2,598 3,472 3,938 RoIC (%) 32% 24% 23% 22%
Balance Sheet RoE (%) 29% 28% 31% 28%
Shareholders Equity 8,254 10,039 12,695 15,816 RoCE (%) 27% 23% 23% 21%
Total debt - 3,465 4,465 5,465 Sales / Total Assets (x) 1.3 1.4 1.5 1.6
Total Netw orth & Liabilities 9,045 15,079 18,969 23,371 Fixed Assets Turnover (x) 1.6 1.5 1.5 1.7
Net f ixed assets 6,514 11,594 14,119 17,778 Financial stability ratios
CWIP 1,826 3,423 3,923 3,923 Total Debt to Equity (x) 0.00 0.35 0.35 0.35
Investments 170 416 416 416 Inventory & Debtor days 20.8 23.1 20.8 20.8
Current assets 2,572 2,233 4,297 6,064 Creditor days 42.7 36.2 42.7 42.7
Current liabilities 2,038 2,587 3,787 4,811 Valuation metrics
Net current assets 534 (355) 510 1,253 Current Share Price (Rs.)
Total Assets 9,045 15,079 18,969 23,371 Market Cap (Rs.mn) 59,640 59,640 59,640 59,640
Cash Flows Fully Diluted Shares (mn) 140 140 140 140
Cash flow s from Operations 3,273 4,213 5,189 5,934 Adjusted EPS (Rs.) 15.4 18.6 24.8 28.1
Cash flow s from Investing (3,739) (7,626) (4,405) (5,405) P/E (x) 27.7 23.0 17.2 15.1
Cash flow s from Financing (655) 2,620 184 184 P/B (x) 7.2 5.9 4.7 3.8
Cash Generated (1,121) (793) 968 713 EV (Rs.mn) 58,257 62,515 62,548 62,835
Opening Cash 2,503 1,383 589 1,557 EV/ EBITDA (x) 15.3 12.7 9.0 7.8
Closing Cash 1,383 589 1,557 2,270 Dividend Yield (%) 1.1% 1.2% 1.2% 1.17%
Abridged Financial Statements
426
GSPL Relative
Absolute Reduce
Underperform Target
CMP Rs. 104
Rs. 96
36
Rating: ◄► Target price: ▼ EPS: ▼
Find Spark research on Bloomberg (SPAK <go>), Thomson First Call, Reuters Knowledge and Factset
Date Oct 12, 2011
Market Data
SENSEX 16536
Nifty 4974
Bloomberg GUJS IN
Shares o/s 563mn
Market Cap Rs. 59bn
52-wk High-Low Rs. 128-77
3m Avg. Daily Vol Rs. 254mn
Index member BSE 200
Latest shareholding (%)
Promoters 37.7
Institutions 40.4
Public 21.9
Financial summary
Year Revenue (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EPS (Rs.) P/E(x) P/B(x)
FY11 10,465 9,694 5,064 9.0 11.6x 2.9x
FY12E 10,892 10,094 4,794 8.5 12.2x 2.5x
FY13E 11,132 10,263 4,614 8.2 12.7x 2.2x
Mayur Patel, CFA
mayur@sparkcapital.in
+91 44 4344 0037
Vishnu Kumar A S
vishnu@sparkcapital.in
+91 44 4344 0069
Stock performance (%)
1m 3m 12m
GSPL -5% 6% -12%
Sensex -2% -12% -18%
BSEO&G 0% -4% -20%
Weakening volumes and lack of near term triggers; Downgrade to Reduce-UPF Transmission volumes for the company are likely to remain weak as declining KGD6 volumes mount pressure on
utilisation levels. Restrained volumes growth; likely delay in tariff approval (6-12 months); postponement of
listing of GSPC Gas (near term triggers assumed earlier) and aggressive capex for new pipelines are the key
reasons behind our negative stance on the stock. Reiterate Reduce-UPF
Investment rationale:
• Weakening volumes: Rising R-LNG prices and declining KG-D6 supplies have been forcing Gujarat Power Utilities
(Torrent, GIPCL, Guj Paguthan etc.) to operate at lower PLFs and therefore consume lesser gas. Although, other
segments are growing at a healthy rate, decline in power offtake is likely to constrain gas transmission volumes in near
term. Overall, volumes are likely to be flattish in FY12E (vs.orig. est. of 7% yoy growth) and pick up only by year end
• Tariff overhang to remain: Based on our interactions with management and PNGRB, we believe the Gujarat network
authorisation and final tariff approval may take longer than expected (10-12mnths vs. our expectations of 3-4months)
owing to the re-shuffle of members in PNGRB. While, we maintain our stance that final tariff should not come below
Rs. 750/mscm (noise of sharp tariff cuts are untenable), delay in the approval process would restrict rerating in
the stock
• Listing of GSPC Gas postponed: Based on GSPL’s management commentary and industry sources, the listing of
GSPC Gas is not likely to happen in the immediate term owing to volatile market conditions. It may take more than a
year for any progress in this regard against our original expectations of few months. Although, we see good value in
GSPL’s equity stake (~36%) in GSPC gas, value discovery would happen closer to any listing related announcements
We expect volumes of 35.5/39.0mmscmd in FY12E/FY13E with tariff estimates of Rs. 800/750 per mscm for
FY12E/FY13E. While volumes should pick-up by the end of FY12E on the back of GNFC, Essar oil etc., Stock would
underperform in the near term due to lack of triggers amidst weak performance expected in the core business. However,
increased contribution from wind power would slightly cushion profitability. We believe the positives of robust business
model are very much factored in and further rerating in the stock from hereon is difficult due to lack of near term catalysts.
We ascribe a DCF value of Rs. 95/share (Rs. 100) to the core business and value investments at a BV of Rs.
1.4/share. Reiterate Reduce-UPF
GSPL Relative
Absolute Reduce
Underperform Target
CMP Rs. 104
Rs. 96
37
Key takeaways of recent Mgmt. meet
• Near term volume visibility:
o GNFC (Fertiliser): Additional volumes of 0.5mmscmd by 4QFY12E. The company is currently drawing 0.4mmscmd taking the total to
0.8/0.9mmscmd by Mar’12
o Essar Oil (Refinery): Additional volumes of 1mmsmcd by 4QFY12E. The company is also undergoing capacity expansion, which could further add
2mmscmd post completion in Dec’12. Currently they are consuming 0.8mmscmd of natural gas
o KRIBHCO (Fertiliser): Additional volumes of 1.6/1.8mmscmd post their capacity expansion (likely COD Dec’12). KRIBHCO is currently drawing
1.8mmscmd of natural gas. The environmental clearance for this expansion has already been received and gas allocation is yet to happen
o Power Plants: Power capacities of around 1050MW are being added in Gujarat (Pipavav-700MW;Hazira-350MW) by the end of FY12. Demand from
these units will depend on the PLFs, these units opt to operate. Overall gas potential is from this pocket is 5-6mmscmd
• Incremental supply visibility:
o Deen Dayal: Likely volumes of 5-6mmscmd in CY13E. It is pertinent to note that the aforesaid power plants have signed fuel supply agreement with
GSPC for 5.2mmscmd. Hence, substantial part of these supplies would flow through GSPL pipelines
o Hazira / Dahej: Hazira LNG terminal (Shell) has a capacity of ~3.5mmtpa with potential to go upto 4.5mmtpa. Currently, it is operating at ~2mmtpa
and therefore there is scope of additional volumes of ~2mmtpa (i.e 7.2mmscmd). Dahej LNG terminal’s second jetty expansion in FY14 would
increase its capacity by 2.5mmtpa (9mmscmd). Overall, 4.5mmtpa (16mmscmd) of additional R-LNG capacity would come over next 2-3yrs
o Oilex: The shale drilling program in Cambay basin is currently under appraisal and drilling results will be submitted to DGH soon. There is a potential
of 5-6mmscmd. Currently, it is difficult to gauge the timeline for commercial production given it is at a testing stage
o We believe the expansion in LNG terminals and potential of DD block may easily support 8-10% CAGR volume growth for GSPL over FY12-14E
• Capacity booking in PLNG’s brownfield (5 MMTPA ) expansion under consideration
o GSPL and GSPC (Parent company) are in talks with Petronet LNG to book 1.25mmtpa (4.5mmscmd) capacity in PLNG’s 5mmtpa brown field
expansion. This capacity may come on board by FY15-16 and the structure of the deal is yet to be finalised. Based on our discussion with the
management we understand that, either GSPL or GSPC or a combination of both is likely to make an advance payment of Rs. 2bn-2.5bn to PLNG,
which is likely to be adjusted once the facility starts operations. This is positive for GSPL as it would enable its customers especially on the
upcoming cross country pipelines, to buy LNG in the global markets and get it regassified without any intermediaries (charging markt margins)
• Wind Power:
o Revenues from wind power segment are likely to be in the range of Rs.400-450mn p.a; most of which would directly flow into cash profits given
minimal operational costs
o The company is applying for Carbon Emission Receipts (CER) from the Clean Development Mechanism Board. The process which is likely to be
complete in a year’s time will enable GSPL to get ~1,00,000 CERs. The CERs are likely to be shared with the Gujarat State Electricity Board. If
GSPL gets the approval, this could contribute additional cash flows of Rs. 50-70mn per annum
GSPL Relative
Absolute Reduce
Underperform Target
CMP Rs. 104
Rs. 96
1,234
4,138 5,064 4,794 4,614 4,280
9,404 9,694 10,094 10,263
70%
75%
80%
85%
90%
95%
100%
-
2,000
4,000
6,000
8,000
10,000
12,000
FY 09 FY 10 FY 11 FY 12E FY 13E
PAT (Rs. Mn) EBITDA (Rs. Mn) EBITDA margin % (RHS)
CAGR growth FY11-14E: EBITDA +4%, PAT (-3%)
Source: Company, Spark Capital Research
898 857 794 800 750
-
200
400
600
800
1,000
FY 09 FY 10 FY 11 FY 12E FY 13E
Tariff (Rs. /mscm)
Tariff to stabilise at Rs.750/mscm post PNGRB approval
Source: Company, Spark Capital Research
15
32 36 36
39
10
15
20
25
30
35
40
FY 09 FY 10 FY 11 FY 12E FY 13E
Volumes (mmscmd)
Flattish volumes for FY12
Source: Company, Spark Capital Research Source: Company, Spark Capital Research
38
Key estimate revision
FY12E FY13E
Old New Change Old New Change
Volumes
(mmscmd) 35.5 35.5 0% 40 39 -1%
Tariff (Rs. /mscm) 800 800 0% 765 750 -2%
EBITDA (Rs. mn) 10,094 10,094 0% 10,611 10,263 -3%
PAT (Rs. mn) 4,794 4,794 0% 4,846 4,614 -5%
EPS (Rs.) 8.5 8.5 0% 8.6 8.2 -5%
Business Overview
GSPL Relative
Absolute Reduce
Underperform Target
CMP Rs. 104
Rs. 96
39
Valuation
DCF Valuation Estimates FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY21E FY22E
Volume (mmscmd) 36 39 42 45 50 51 51 51 51 51 51
Tariff (Rs. / mscm) 800 750 750 750 750 750 750 750 750 750 750
NOPAT (Rs. Mn) 5,577 5,620 5,995 6,400 7,227 7,219 7,235 7,146 7,092 7,010 7,010
Depreciation (Rs. Mn) 1,770 1,874 2,068 2,213 2,290 2,348 2,406 2,483 2,540 2,560 2,560
Capex + Change in WC (Rs. Mn) 3,919 3,748 5,261 1,933 1,447 704 716 1,000 684 (12) 0
FCFF (Rs. Mn) 3,428 3,747 2,802 6,680 8,071 8,864 8,925 8,628 8,948 9,581 9,569
PV of CF as on March 2012 (Rs. Mn) 3,367 2,263 4,847 5,261 5,191 4,696 4,079 3,801 3,657 3,281
Key DCF Estimates
Mar-12
WACC 11%
Terminal Growth Rate -
Total firm Value (Rs. mn) 69,482
Net debt / (cash) (Rs. mn) 16,162
Equity Value (Rs. mn) 53,320
Shares O/s (mn) 562
DCF derived Price (Rs. /share) 95
Investment at Book Value 1
Target Price (Rs./Share) 96
Current trading Multiples
FY11 FY12E FY13E
EPS (Rs.) 9.0 8.5 8.2
P/E (x) 11.6x 12.2x 12.7x
P/B (x) 2.9x 2.5x 2.2x
EV/EBITDA (x) 7.3x 7.0x 6.9x
Implied target Multiples
FY11 FY12E FY13E
P/E (x) 10.7x 11.3x 11.7x
P/B (x) 2.7x 2.3x 2.0x
EV/EBITDA (x) 6.9x 6.6x 6.5x
WACC
Le
veli
zed
Tari
ff 9% 10% 11% 12% 13%
650 105 91 78 68 60
700 116 100 87 76 67
765 127 110 96 84 75
800 138 120 105 93 82
850 149 130 114 101 89
GSPL Relative
Absolute Reduce
Underperform Target
CMP Rs. 104
Rs. 96
40
Financial Summary
Rs. mn FY 10 FY 11 FY 12E FY 13E FY 10 FY 11 FY 12E FY 13E
Profit & Loss Growth ratios (%)
Revenues 10,009 10,465 10,892 11,132 Sales 105.3% 4.6% 4.1% 2.2%
EBITDA 9,404 9,694 10,094 10,263 EBITDA 119.7% 3.1% 4.1% 1.7%
Depreciation 2,365 1,299 1,770 1,874 Adj. Net Profit 235.3% 22.4% -5.3% -3.8%
EBIT 7,039 8,394 8,323 8,388 Margin ratios (%)
Other Income/Exp 159 216 260 260 EBITDA 94.0% 92.6% 92.7% 92.2%
Interest 929 961 1,363 1,699 EBIT 70.3% 80.2% 76.4% 75.4%
PBT 6,269 7,650 7,220 6,949 Adj. Net Profit 41.3% 48.4% 44.0% 41.5%
Net Profit 4,138 5,064 4,794 4,614 Performance ratios
Adjusted Net Profit 4,138 5,064 4,794 4,614 RoIC (%) 18% 18% 16% 15%
Balance Sheet RoE (%) 30% 28% 22% 18%
Shareholders Equity 15,638 20,050 23,862 27,164 RoCE (%) 18% 18% 15% 13%
Total debt 12,595 14,835 17,235 22,735 Sales / Total Assets (x) 0.4 0.3 0.3 0.2
Total Netw orth & Liabilities 29,639 37,541 44,374 53,176 Fixed Assets Turnover (x) 0.4 0.3 0.3 0.3
Net f ixed assets 24,368 31,817 34,548 37,173 Financial stability ratios
CWIP 6,491 3,546 3,546 3,046 Total Debt to Equity (x) 0.81 0.74 0.72 0.8
Investments 666 766 6,766 12,766 Inventory & Debtor days 32.1 30.1 30.1 30.1
Current assets 6,445 8,997 7,545 8,616 Creditor days 176.8 100.9 100.9 100.9
Current liabilities 8,334 7,586 8,033 8,427 Valuation metrics
Net current assets (1,889) 1,410 (488) 189 Current Share Price (Rs.)
Total Assets 29,639 37,541 44,374 53,176 Market Cap (Rs.mn) 58,512 58,512 58,512 58,512
Cash Flows Fully Diluted Shares (mn) 563 563 563 563
Cash flow s from Operations 8,862 5,922 8,802 8,112 Adjusted EPS (Rs.) 7.4 9.0 8.5 8.2
Cash flow s from Investing (7,617) (5,623) (10,500) (10,000) P/E (x) 14.1 11.6 12.2 12.7
Cash flow s from Financing (478) 349 381 2,817 P/B (x) 3.7 2.9 2.5 2.2
Cash Generated 767 648 (1,317) 929 EV (Rs.mn) 69,348 70,939 74,674 79,245
Opening Cash 975 1,742 2,390 1,073 EV/ EBITDA (x) 7.4 7.3 7.4 7.7
Closing Cash 1,742 2,390 1,073 2,002 Dividend Yield (%) 1.0% 1.0% 1.4% 1.92%
Abridged Financial Statements Key metrics
104
Gujarat Gas Relative
Absolute Reduce
Underperform Target
CMP Rs. 420
Rs. 402
41
Rating: ◄► Target price: ◄► EPS: ▼
Find Spark research on Bloomberg (SPAK <go>), Thomson First Call, Reuters Knowledge and Factset
Date Oct 12, 2011
Market Data
SENSEX 16536
Nifty 4974
Bloomberg GGAS IN
Shares o/s 128mn
Market Cap Rs. 54bn
52-wk High-Low Rs. 485-300
3m Avg. Daily Vol Rs. 29mn
Index member BSE 500
Latest shareholding (%)
Promoters 65.1
Institutions 23.5
Public 11.4
Financial summary
Year Revenue (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EPS (Rs.) P/E(x) EV/EBITDA(x)
FY11 18,493 4,156 2,565 20.0 22.4 12.5
FY12E 25,280 5,249 3,448 26.9 16.6 9.6
FY13E 29,697 5,566 3,608 28.1 15.9 8.9
Mayur Patel, CFA
mayur@sparkcapital.in
+91 44 4344 0037
Vishnu Kumar A S
vishnu@sparkcapital.in
+91 44 4344 0069
Stock performance (%)
1m 3m 12m
GGAS -6% 4% 7%
Sensex -2% -12% -18%
BSEO&G 0% -4% -20%
Rising gas cost to normalise margins; Maintain Reduce-UPF
Gujarat gas has showcased strong pricing power by sharply increasing prices over last 6-8 months to pass on rising gas costs, this
has led to a euphoria on gross spread expansion. But based on our recent discussion with the mgmt, we have learnt that the
heightened gross spreads of 2QCY11 (Rs. 5.9/scm) is unlikely to sustain despite recent price increases owing to rising R-LNG
supplies at higher prices; declining cheap dom. supplies; strengthening dollar and no near term price hikes. Volume growth in CY11 is
likely to remain modest (5%-6%) with no immediate growth boosters. The current valuations are more than pricing in the current
margin expansion but is not factoring in bleak volume growth visibility; rising gas cost; and high sensitivity of operational performance
to future price increases. Reiterate Reduce - Underperform
Investment rationale: Volume growth: Likely to remain modest over CY10-13E (CAGR growth of 7%). 3QCY11 volumes are likely to be in the range
of 3.5-3.6mmscmd (+7% qoq) and exit the year at around 3.8mmscmd.
Price Hikes: No agitation faced from Textile customers for raising prices by 10%-15% in the industrial segment. Although the
price hikes looks steep, the increase in RSL would partly offset the impact and result in only a 5%-6% positive impact on
blended realisations wef Sep’11. Also, GGAS is likely to follow IGL’s strategy of differential pricing in domestic PNG.
Gross Spreads: The spread in 2QCY11 (Rs. 5.9/scm) is likely to sober down owing to rising R-LNG supplies at higher prices;
declining supplies of cheap domestic gas; and strengthening dollar. We expect gross spreads to decline to Rs. 4.9/scm by
4QCY11E. GGAS does not hedge dollar payments and expected changes in the USD are only considered during price hikes.
Network authorisation / New bids: Authorisation of its Gujarat network is likely to be received within a month. This would be a
positive trigger for the stock as it would enable GGAS to plan its capex in virgin areas which are clubbed with the existing
operating regions in the applied Geog Areas (GAs). On the Bhavnagar bid, company is hopeful of winning the same. This
region has a potential to scale up to 1mmscmd over 5 years from the date of authorisation.
Cash Build up: As of Jun’11 the company has ~Rs. 5.3bn in liquid investments and is likely to generate around Rs. 2.50bn of
free cash flows in CY11E. GGAS would take a call on usage (special dividend, buyback etc.) of surplus cash after the outcome
of the Bhavnagar bid, which might require some part of the cash.
We believe the gross spread outperformance was one off and likely to normalise over the ensuing quarters. We do see a possibility of
some small pop in the stock price on the receipt of network authorisation, which would be an another opportunity to book profits. The
current valuations are more than pricing in the current margin expansion but is not factoring in bleak volume growth visibili ty; rising gas
cost; and high sensitivity of operational performance to future price increases. Maintain REDUCE-UPF with a TP of Rs. 402.
Gujarat Gas Relative
Absolute Reduce
Underperform Target
CMP Rs. 420
Rs. 402
1,729
2,565
3,448 3,608 4,088
2,795
4,156
5,249 5,566
6,191
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
CY09 CY10 CY11E CY12E CY13E
PAT (Rs. mn) EBITDA (Rs. mn)
CAGR Growth (CY10-13E): EBITDA = 14%; PAT = 17%
Source: Company, Spark Capital Research
10351212 1281
13901501
0
200
400
600
800
1000
1200
1400
1600
CY09 CY10 CY11E CY12E CY13E
Sales volumes (mmscm)
Modest CAGR Volume growth of 7% (CY10-13E)
Source: Company, Spark Capital Research
13.415.0
19.521.1
22.2
9.710.6
14.315.9 16.7
3.7 4.35.2 5.2 5.4
0.0
5.0
10.0
15.0
20.0
25.0
CY09 CY10 CY11E CY12E CY13E
Realisation (Rs./scm) Cost of Gas (Rs./scm) Gross Spread (Rs./scm)
Gross spread likely to flatten over the next few years (CY12/13)
Source: Company, Spark Capital Research
42
Business Overview
42
Key estimate revision
CY11E CY12E
Old New Change Old New Change
Volumes (mmscm) 1,286 1,281 0% 1,389 1,390 0%
Realisation (Rs. /scm) 19.0 19.5 2% 20.4 21.1 4%
Gross spread (Rs. /scm) 5.4 5.2 -3% 5.3 5.2 -1%
Revenues (Rs. mn) 24,767 25,280 2% 28,618 29,697 4%
EBITDA (Rs. mn) 5,500 5,249 -5% 5,651 5,566 -2%
PAT (Rs. mn) 3,620 3,448 -5% 3,666 3,608 -2%
EPS (Rs.) 28.23 26.88 -5% 28.6 28.1 -2%
All figures in Rs. mn, except EPS, which is in Rs.
Gujarat Gas Relative
Absolute Reduce
Underperform Target
CMP Rs. 420
Rs. 402 Valuation
43
DCF Valuation Estimates CY11E CY12E CY13E CY14E CY15E CY16E CY17E CY18E CY19E CY20E CY21E
Volume (mmscmd) 3.5 3.8 4.1 4.4 4.6 4.9 5.2 5.5 5.9 6.2 6.6
Avg realisation (Rs. / scm) 19.5 21.1 22.2 22.6 22.6 22.6 22.6 22.6 22.6 22.6 22.6
Gross Spread (Rs. /scm) 5.2 5.2 5.4 5.1 4.7 4.7 4.7 4.7 4.7 4.7 4.7
EBITDA (Rs. /scm) 4.1 4.0 4.1 3.6 3.1 3.4 3.4 3.4 3.4 3.4 3.4
NOPAT (Rs. mn) 3,105 3,262 3,624 3,300 2,847 3,456 3,664 3,886 4,124 4,378 4,650
Depreciation (Rs. mn) 614 698 782 866 936 992 1,048 1,104 1,160 1,216 1,273
Capex +WC Chgs (Rs. mn) 1,897 1,933 1,940 1,458 965 965 963 961 958 956 953
FCFF (Rs. mn) 1,822 2,026 2,466 2,708 2,818 3,483 3,749 4,029 4,326 4,639 4,969
PV of CF as on Mar’ 12 (Rs. mn) 0 1,883 2,078 2,070 1,954 2,191 2,139 2,085 2,030 1,975 1,919
Key DCF Estimates
Mar-12
WACC (%) 10.25%
Terminal Growth Rate (%) 3%
PV of Terminal Value (Rs. Mn) 27,262
Total firm Value (Rs. Mn) 47,588
Net debt / (cash) (Rs. Mn) (7,029)
Pref. Sh. +Minority (Rs. Mn) 220
Other liabilities (Rs. Mn) 2,835
Equity Value (Rs. Mn) 51,562
Shares O/s (Nos. mn) 128
Target Price (Rs. /Share) 402
WACC
Term
ina
l G
row
th 8% 9% 10% 11% 12%
2.0% 498 427 374 333 300
2.5% 525 446 387 343 307
3.0% 557 467 402 353 315
3.5% 595 492 419 365 324
4.0% 643 521 438 379 334
Current Trading Multiples Implied target multiple
CY10 CY11E CY12E CY10 CY11E CY12E
EPS (Rs.) 20.0 26.9 28.1 20.0 26.9 28.1
P/E (x) 21.0x 15.6x 14.9x 20.1x 15.0x 14.3x
P/B (x) 6.4x 5.3x 4.6x 6.1x 5.1x 4.4x
EV/EBITDA (x) 11.6x 9.2x 8.7x 11.1x 8.8x 8.3x
Gujarat Gas Relative
Absolute Reduce
Underperform Target
CMP Rs. 420
Rs. 402
44
Financial Summary
Rs. mn CY09 CY10 CY11E CY12E CY09 CY10 CY11E CY12E
Profit & Loss Growth ratios (%)
Revenues 14,197 18,493 25,280 29,697 Sales 9.1% 30.3% 36.7% 17.5%
EBITDA 2,795 4,156 5,249 5,566 EBITDA 18.8% 48.7% 26.3% 6.0%
Depreciation 474 542 614 698 Adj. Net Profit 8.5% 48.3% 34.4% 4.6%
EBIT 2,321 3,614 4,635 4,868 Margin ratios (%)
Other Income/Exp 266 224 440 440 EBITDA 19.7% 22.5% 20.8% 18.7%
Interest 1 5 5 5 EBIT 16.4% 19.5% 18.3% 16.4%
PBT 2,586 3,833 5,070 5,304 Adj. Net Profit 12.2% 13.9% 13.6% 12.1%
Net Profit 1,750 2,590 3,473 3,633 Performance ratios
Adjusted Net Profit 1,729 2,565 3,448 3,608 RoIC (%) 29% 43% 50% 45%
Balance Sheet RoE (%) 23% 32% 37% 33%
Shareholders Equity 7,653 8,447 10,100 11,614 RoCE (%) 24% 32% 37% 33%
Total debt - - - - Sales / Total Assets (x) 1.5 1.7 2.0 2.0
Total Networth & Liabilities 9,963 11,397 13,824 15,846 Fixed Assets Turnover (x) 2.1 2.5 3.0 3.1
Net fixed assets 5,809 6,359 7,246 8,048 Financial stability ratios
CWIP 1,356 1,298 1,798 2,298 Total Debt to Equity (x) - - - -
Investments 4,238 5,488 5,488 5,488 Inventory & Debtor days 35.5 33.7 32.2 32.2
Current assets 1,793 1,960 4,106 5,347 Creditor days 56.6 43.1 43.1 43.1
Current liabilities 3,476 4,051 5,156 5,678 Valuation metrics
Net current assets (1,683) (2,091) (1,050) (331) Current Share Price (Rs.)
Total Assets 9,963 11,397 13,824 15,846 Market Cap (Rs.mn) 53,865 53,865 53,865 53,865
Cash Flows Fully Diluted Shares (mn) 128.3 128.3 128.3 128.3
Cash flows from Operations 1,782 2,874 4,058 3,962 Adjusted EPS (Rs.) 13.5 20.0 26.9 28.1
Cash flows from Investing (1,966) (2,164) (1,560) (1,560) P/E (x) 31.2 21.0 15.6 14.9
Cash flows from Financing 39 (695) (1,051) (1,616) P/B (x) 7.0 6.4 5.3 4.6
Cash Generated (146) 14 1,448 786 EV (Rs.mn) 49,548 48,284 46,836 46,050
Opening Cash 225 79 94 1,541 EV/ EBITDA (x) 17.7 11.6 8.9 8.3
Closing Cash 79 94 1,541 2,328 Dividend Yield (%) 1.9% 2.9% 3.3% 3.3%
420
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