Elara Securities (India) Private Limited The Sequel
Part I
2
Up, Up and Away, our initiating thematic on gas, dwelled on India’s
big fight against pollution and how the gas sector was an impending
beneficiary of the same. Subsequent National Green Tribunal diktats
and structural fall in global prices acted as key catalysts to our thesis
pumping up stock prices by 50-80% under one year.
Part II
The Sequel, is Part II of a hugely successful thematic. The report
highlights newer dimensions of the sector and it has just got bigger.
We add two more investible opportunities in the space — Gujarat Gas
and Mahanagar Gas — as part of this series.
Elara Securities (India) Private Limited The Sequel
Gains in the pipeline
Urban sprawl chokes cities
Emergence of the metropolitan city: 50% growth in cities with more than
1mn population during 2001-11
Bumper-to-bumper: 11% CAGR in road traffic during 1950-2011 (Source:
Planning Commission); average Indian travelled ~7,000km in 2010-11 vs only
64km over 1950-51, resulting in 11% CAGR in road traffic; high passenger
traffic results in heavy pollution; 10 out of 20 most polluted cities globally are
Indian
Rising pollution levels: 10 out of 20 most polluted cities globally are based
in North India. Pan-India, only 2 out of 180 cities had low PM10, as per CPCB
India gears up for the challenge
Power, fertilizer demand-led opportunity: Out of unmet demand of
100mmscmd from the power sector, only 32mmscmd is met. Fertilizers at
42mmscmd to grow 30% by 2020
Most of India not on the gas grid: Existing trunk pipeline network of
16,000km to expand by 70% in the next 4-5 years. Double LNG
consumption from 58mmscmd to 106mmscmd in the next 3-4 years
National Green Tribunal sharpens fangs: post Judiciary taking up the
initial cudgels against pollution, orders issues cross-country
CNG bids: 60 cities in seven rounds to date. Emergence of private firms like
Adani, Jay Madhok, Synergy, Bucon, Essel Gas and several PSU JVs
Green corridors & Smart cities: Eight green corridors identified to facilitate
inter-city CNG transportation, an increase in CNG demand of 35%;
government aims development of 100 smart cities to boost CNG use
New emerging uses + low LNG prices = stock rerating
Cogeneration, tri-generation: environment friendly and cheaper than
gasoil, suitable where availability of grid electricity is erratic
Gas geysers, 2W pilot: incremental demand of 0.1-0.5mmscmd expected in
leading cities
Low LNG prices: addition of ~140mn tonnes pa of additional supply over
total global trade of 245mn tonnes in 2015 likely to keep prices suppressed
Our top picks
Gujarat Gas (GUJGA IN, Buy, TP: INR 751, Upside: 22%): volume
growth of 10-15%, led by industrial demand and addition of new areas; low
spot LNG prices to help demand
Indraprastha Gas (IGL IN, Buy, TP: INR 845, Upside: 25%): volume
growth of 7-8%; free cashflow of INR 5bn pa; working on several new
applications
Mahanagar Gas (MAHGL IN, Buy, TP: INR 652, Upside: 21%): volume
growth of ~5-8% pa over FY16-18E; highest EBITDA/scm; further growth
from adjoining areas of Mumbai and Raigad District
Petronet LNG (PLNG IN, Buy, TP: INR 386, Upside: 23%): expansion-
led volume growth to boost EBITDA by 70% over FY16-18E; higher earnings
visibility post expansion in December 2016
Source: Wood Mackenzie, WHO , Industry, Elara Securities Research
3
Elara Securities (India) Private Limited The Sequel
Table of Content
4
Past, present and future 5
Case for rerating 6
Mumbai – maximum city, bursting at the seams 10
India gears up to the challenge 11
Government wakes up 16
Green corridors – boost to volume 19
Smart cities – the new frontier 22
New applications, low LNG prices to help 24
Savings potential of Combined Heat & Power (CHP) 25
Two-wheelers on CNG 28
LNG for inland bunkering 30
Low LNG prices to help 32
Global peer valuation (Consensus) 34
Company Section
Gujarat Gas – Set for Greener Pursuits 37
Indraprastha Gas – Time to Tank Up 48
Mahanagar gas – New Kid on the Block 58
Petronet LNG – Set to Take-off 68
Appendix 77
Elara Securities (India) Private Limited The Sequel
Past, present and future
5
Source: Capitaline, Elara Securities Research
Sep 4, 2015: Elara thematic on natural gas, Up, Up & Away
Oct 1, 2015: Domestic gas price cut by ~USD 1/mmBtu
Oct 13, 2015: SC announces cess on gasoil vehicles entering Delhi
Nov 20, 2015: Successful renegotiation of LT Rasgas contract
Dec 5, 2015: Delhi govt implements the odd-even experiment
Dec 11, 2015: NGT announces further restriction on gasoil vehicles in
Delhi
Jan 6, 2016: Noida administration directs industrial units to shift to
natural gas by March 2016; challenged in court
Jan 13, 2016: After restart of two nuclear reactors in Japan in 2015,
two more reactors ready to start
Apr 7, 2016: Indraprastha Gas opens 36 new CNG stations to cut
queues
Jul 1, 2016: Mahanagar Gas lists, closes 25% higher than upper
limit of pricing band
4-S
ep-1
5
1-O
ct-1
5
13-O
ct-1
5
20-N
ov-1
5
5-D
ec-
15
11-D
ec-
15
6-J
an-1
6
13-J
an-1
6
7-A
pr-
16
1-J
ul-16
60
80
100
120
140
160
180
Apr-
15
May-1
5
Jun-1
5
Jul-15
Aug-1
5
Sep-1
5
Oct
-15
Nov-1
5
Dec-
15
Jan-1
6
Feb-1
6
Mar-
16
Apr-
16
May-1
6
Jun-1
6
Jul-16
IGL NIFTY Gujarat Gas Petronet GSPL GAIL
Indraprastha Gas &
Petronet LNG outperform
the Nifty by ~50-70% since
April 1, 2015
IGL is currently trading at
15x FY18E P/E and Petronet
LNG is trading at 11.5x
FY18E P/E. Is the rally
over? Where do we go
from here?
We identify a host of new
applications and
avenues, which may
not result in
incremental rise
in EPS in the next
12-18 months, but
would result in
rerating of the stocks
Elara Securities (India) Private Limited The Sequel
Case for rerating
Source: Elara Securities Research
Rerating
Assured supply of up to 110% for CNG & PNG
domestic
Structurally low LNG prices
Thrust on reducing pollution
Promising new applications
Two Wheelers
0.5mmscmd in Delhi alone
Smart cities
Faster implementation
CHP/Tri-generation
Bunkering,
trucking
Green CNG corridors
~35% increase in CNG consumption
6
Elara Securities (India) Private Limited The Sequel
Increasing urbanization
50% growth in cities with > 1mn population
Growing urban population
Source: Planning Commission, Elara Securities Research
Urbanization choking India’s cities
Strong vehicular growth: Leading urban centres like Mumbai and Delhi
witness a 6-8% CAGR during FY10-16
Sharp rise in distance travelled: Urban centres have expanded and
better roads have facilitated longer commutes, resulting in average
distance travelled increasing 110x in 50 years ending FY11 (Source:
Planning Commission)
Traffic to worsen: The Energy & Resources Institute estimates cars per
thousand to rise from 18 to 35 by 2025 in India; a few cities like Delhi
would have more than 300 cars per thousand
0
10
20
30
40
50
60
2001 2011
Number of cities with population more than 1mn
Source: Census 2011, Elara Securities Research
26
27
28
29
30
31
32
2001 2011
(% of total population)
Urban population
Ballooning road traffic
Source: Census 2011, Elara Securities Research Source: Census 2011, Planning Commission, Elara Securities Research
0
10,000
20,000
30,000
40,000
1950-5
1
1960-6
1
1970-7
1
1980-8
1
1990-9
1
2000-0
1
2010-1
1
2020-2
1
CAGR of 11% during 1951-2021 results in massive traffic
7
Elara Securities (India) Private Limited The Sequel
Industrial pollution worsens
43 critically polluted industrial clusters
Central Pollution Control Board: Develops Comprehensive Environmental Pollution Index (CEPI) to “capture various health dimensions of environment including air,
water and land” in industrial sectors in 2009. In partnership with State Pollution Control Boards, IIT Delhi and Ministry of Environment & Forests, it identifies 88 industrial
clusters for the study.
Critically polluted clusters: Declares 43 clusters critically polluted and 32 others severely polluted. The government has banned any development projects in
these critically polluted clusters. Action plans chalked out for corrective measures. Natural gas identified an important tool to reduce air pollution.
Source: Central Pollution Control Board, Elara Securities Research
State No. of
clusters Industrial clusters/Areas
CEPI
Andhra Pradesh
2 Vishakha patnam 52
Patancheru-Bollaram 76
Chhattisgarh 1 Korba 69
Delhi 1
Nazafgarh drain basin (including Anand Parvat, Naraina, Okhla and Wazirpur)
73
Gujarat 6
Ankaleshwar 81
Vapi 85
Ahmedabad 70
Vatva 83
Bhavnagar 63
Junagarh 53
Haryana 2 Faridabad 74
Panipat 81
Jharkhand 1 Dhanbad 72
State No. of
clusters Industrial clusters/Areas
CEPI
Karnataka 2 Mangalore 68
Bhadravati 45
Kerala 1 Cochin, Greater 58
Madhya Pradesh
1 Indore 79
Maharashtra 5
Chandrapur 82
Dombivali 72
Aurangabad 69
Navi Mumbai 73
Tarapur 73
Orissa 3
Angul Talchar 73
Ib Valley 60
Jharsuguda 73
Punjab 2 Ludhiana 76
Mandi Gobind Garh 78
State No. of
clusters Industrial clusters/Areas
CEPI
Rajasthan 3
Bhiwadi 71
Jodhpur 78
Pali 83
Tamil Nadu 4
Vellore 80
Cuddalore 70
Manali 77
Coimbatore 53
Uttar Pradesh 6
Ghaziabad 84
Singrauli 83
Noida 79
Kanpur 72
Agra 69
Varanasi-Mirzapur 57
West Bengal 3
Haldia 62
Howrah 61
Asansole 56
8
Elara Securities (India) Private Limited The Sequel
India chokes up
Rising air pollution: too high a price
Dying too young: WHO study estimates 0.62mn premature deaths every
year in India in 2010
Smog blankets all-India: All 121 cities being monitored, with the
exception of one, had PM2.5 above WHO acceptable limits
Waiting to exhale: 10 most polluted cities have PM2.5 numbers that are
11-18x WHO permissible limits. In Delhi alone, respiratory-related illnesses
in 32% of children in Delhi, with reduced lung function in 43.5%
Source: WHO, 2015, CSE, Elara Securities Research
100 150 200 250
Zabol, Iran
Gwalior, India
Allahabad, India
Riyadh, Saudi Arabia
Al Jubail, Saudi Arabia
Patna, India
Raipur, India
Bamenda, Cameroon
Xingtai, China
Baoding, China
Delhi, India
Ludhiana, India
Dammam, Saudi Arabia
Shijiazhuang, China
Kanpur, India
Khanna, India
Firozabad, India
Lucknow, India
Handan, China
Peshawar, Pakistan
PM2.5(µg/m3)
Alarm bells: only 2 out of 180 cities
in India had low PM10, as per CPCB
Source: WHO 2016, Elara Securities Research
10 cities in India make it to the top 20 most polluted cities
India’s commitment to the World
COP 21: As a part of Intended Nationally Determined Contribution, India
commits to 33-35% reduction in energy intensity by 2030 over 2005 levels
Commits to increase forest cover: Additional carbon sink of 2.5-3bn
tonnes of CO2 equivalent through additional forest & tree cover by 2030
Non-fossil power: Aims to have 40% cumulative power installed capacity
from non-fossil fuel based energy resources by 2030
9
Elara Securities (India) Private Limited The Sequel
Mumbai – maximum city, bursting at the seams
Source: Indian Institute of Human Settlement, Elara Securities Research
Stats get denser: Mumbai population of 12.50mn in 2011 is expected to
rise to 13.94mn by 2034. CGD companies would be direct beneficiaries
Traffic congestion to increase in the upcoming years: Vehicular
population grows 4.5x over 1992-2011. For example, the number of CNG
vehicles in Mumbai & adjoining areas grew at a CAGR of 14% over 2009-16.
Higher emphasis on greener fuels
Worsening air quality: According to the Central Pollution Board of India,
Mumbai reported an average AQI Index value of 100 in February 2016 where
air was contaminated with pollutants (PM2.5 and PM10). In Mumbai alone,
~3,000 tonnes of pollutants are spewed into the air daily, of which
52% are from automobiles, 2% domestic fuels and the rest industries
50% population growth in Greater Mumbai in 20 years
0
5
10
15
20
25
30
1961 1971 1981 1991 2001 2011 2015
(mn)
Vehicles registered in Greater Mumbai
Vehicular population grows 4.5x over 1992-2011
CNG penetration rises to 70% just in a decade
0
1,000
2,000
3,000
4,000
5,000
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
(BEST* Buses)
Diesel CNG
Busting at the seams
Source: Indian Institute of Human Settlement, Elara Securities Research Note: * Brihanmumbai Electricity Supply and Transport Source: ITEA Conference, Oslo 2015, Elara Securities Research
10
Elara Securities (India) Private Limited The Sequel
India gears up to the challenge
Opportunity bonanza
Judiciary led in the past
Source: NGT, Elara Securities Research
Government wakes up
Launches Air Quality Index: Central Pollution Control Board defines
monitoring parameters and acceptable limits
NAMP: National Air Quality Monitoring Programme executes monitoring of air
quality through 342 stations across 127 cities & towns in 26 states and 4 four
Union Territories
COP 21: India commits to reduce emissions intensity by 33-35% by 2030
over 2005 levels; increase forest cover; 40% of total installed power capacity
to be non-fossil by 2030
National Green Tribunal emerges as new champion
Ban on older vehicles in Delhi: ban on gasoil vehicles older than 10
years and gasoline older than 15 years
May extend ban to other cities: six municipal areas in Kerala and 11
other heavily polluted cities under the radar
Eco-sensitive zones: Ban on vehicles older than 15 years on the Manali-
Rohtang Highway and use of only CNG buses for tourism
UP government: Considers introducing CNG buses in cities
Power, fertilizer demand-led opportunity for natural gas: Out of
unmet demand of 100mmscmd from the power sector, only 32mmscmd is
met. Fertilizers at 42mmscmd to grow 30% by 2020E. Hence, current
consumption of ~127mmscmd is expected to rise to 190mmscmd
Much of India not on the gas grid: Existing trunk pipeline network of
16,000km to expand by 70% in the next 4-5 years; the government is
helping via viability gap funding. New identified cities for CGD will result in
unprecedented rise in urban pipeline network
Opportunity for LNG players: Domestic gas supply (excluding internal
consumption) for external sales is at 70mmscmd; ~45% of current
consumption is being met through LNG. Space exists to double LNG
consumption from 58mmscmd to 106mmscmd in the next 3-4 years.
Petronet LNG expands capacity 18.5mmscmd to meet demand
1998: SC mandates CNG for public transportation in New Delhi
2001: Mumbai HC orders phasing out of transport vehicles older than 15
years and phasing out or conversion to CNG of transport vehicles older than 8
years
2012: Gujarat HC orders vehicles (private & public) to be converted to CNG
2015: Karnataka HC orders public transport & three wheelers to run on CNG
11
Elara Securities (India) Private Limited The Sequel
More join the party
Fertilizer second-biggest consumer after power
Petrochem gas consumption to rise by 10mmscmd: The upcoming
BCPL, Pata expansion and OPaL are expected to increase demand for gas by
10mmscmd from the petrochemicals industry
Refineries’ unmet demand: We estimate current consumption of
~10mmscmd will sustain despite new refining capacity due to RIL’s demand
coming off. There would be geographic shift, leading to pipeline demand.
We expect 10-15% pa CGD growth: while the government forecast a
demand CAGR of 19% to reach 51mmscmd by 2022
Infra pipeline major draw
Gas consumption to rise by 14mmscmd: Current gas consumption by
fertilizer sector is 42mmscmd. Revivals & conversion are expected to raise
consumption by the fertilizer sector from 42mmscmd to 56mmscmd
Supply deficit: 30 urea units turn out ~23mn tonnes currently while
demand is likely to rise to 38mn tonnes by FY25E from 32mn tonnes in FY15
Convert & revive: Government plans conversion of defunct fertilizer plants
of MFL, MCFL & SPIC to gas from naphtha. Additionally, revival of Sindri,
Barauni and Gorakhpur fertilizer plants on the cards
Petrochem, CGD emerges as another growth area
Huge demand for pipelines: Among awarded cities for CGD, 22 are non-
operational. IGL has developed a network of 10,000km of urban pipelines
while MGL & Gujarat Gas have 4,600km and 16,000km, respectively. As new
cities become operational, it would result in huge demand
Case for more terminals: Only two fully functional LNG terminals exist with
total capacity of 15mn tonnes pa. Unavailability of domestic gas combined
with huge unmet demand as gas grid expands would result in demand for
LNG terminals, far more than currently planned additions of 10mn tonne pa
The spillover effect
EPC contracts: Revival of Sindri, Gorakhpur & Barauni fertilizer plants spell
opportunity of INR 180bn. Most projects would go to Engineers India
(ENGR IN). Fertilizer firms like Madras Fertilizers (MDF IN),
Mangalore Chemicals & Fertilizers (MCF IN) & SPIC (SPET IN) are
direct beneficiaries
Pipelines: Suppliers Jindal Saw (JSAW IN), Welspun Corp (WLCO IN)
and Man Industries (MAN IN) would benefit from higher orders for urban
and trunk pipelines
Kit manufacturers: Most CNG kits currently imported and retrofitted.
Market currently unorganized. As demand rises, new market opens up
12
Elara Securities (India) Private Limited The Sequel
LNG consumption to double by 2020E
Domestic production a laggard: No meaningful increase in
domestic gas production over the next two years
LNG to bridge the gap: While Dahej would expand from
37.0mmscmd to 55.5mmscmd from December 2016, GSPC’s
Mundra LNG terminal is expected to be commissioned in FY17.
Kochi would see higher volume due to a pickup from BPCL’s
refinery expansion
0
50
100
150
200
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
(mmscmd)
Domestic gas LNG
Dahej - Brownfield 5mn tonne pa Mundra - Greenfield 5mn tonne pa Kochi - higher utilization due to BPCL's refinery expansion Dabhol - breakwater facilitating full utilization of 5mn tonne pa
Disclaimer: Map not to scale Source: Petronet LNG, Shell Hazira, GSPC LNG, GAIL, H -Energy, Elara Securities Research
Tamil Nadu
Kerala
Karnataka
Andhra Pradesh
Maharashtra
Madhya Pradesh
Rajasthan
Gujarat
Uttar Pradesh
Punjab
Bihar
Orissa
Jharkhand West
Bengal
Sikkim Arunachal Pradesh
Assam
Tripura
Meghalaya
Mizoram
Manipur
Nagaland
Goa
Pondicherry
Uttaranchal
Jammu &
Kashmir
Haryana
Himachal Pradesh
Delhi
Chhattisgarh
Existing
Announced
Telangana
MPT- Mumbai 5.0
Petronet LNG – Gangavaram 5.0
Shell/GAIL – Kakinada 3.5
H-Energy - Jaigad 8.0
ONGC – Mangalore 5.0
IOC –Ennore 5.0
IOC –Dhamra 5.0
VGS – Kakinada 3.5
GAIL – Paradip 3.5
H-Energy Digha 6.0
LNG Bharat – Nellore 5.0
HPCL and SP – Chhara 5.0
Swan Energy – Jaffrabad 4.5
Dahej
Dabhol
Hazira
Kochi 5.0
Mundra 5.0
Under construction
Domestic gas production is unlikely to
ramp up beyond 100mmscmd by FY18E.
As a result, supply gap to be bridged by
importing LNG
Gas availability to rise by ~50%
Source: Elara Securities Estimate
13
Elara Securities (India) Private Limited The Sequel
Large swathes of India still without gas
Source: Petroleum Planning & Analysis Cell, Elara Securities Research
Only ~16,000km of pipelines: South India, large parts of Central India,
North India and Northwest India do not have access to gas network
Land acquisition hurdle: The Kochi-Mangalore-Bangalore pipeline is
currently facing land acquisition problems; as a result, Kochi LNG terminal is
just ~5% utilized
~11,000km of pipelines under construction: slow progress due to
unavailability of gas
Renewed boost from the fertilizer sector: The Jagdishpur-Haldia pipeline
to help revive Barauni, Sindri & Gorakhpur fertilizer plants is to be built in
three phases; Phase 1 scheduled to be completed by December 2018
Budgetary grants: The government has decided to extend budgetary
grants instead to GAIL & GSPL to meet shortfall in cost of setting up new
pipelines
14
Elara Securities (India) Private Limited The Sequel
Green tribunal & judiciary’s anti-pollution orders turn on the heat
Tamil Nadu
Karnataka
Andhra Pradesh
Maharashtra
Madhya Pradesh
Rajasthan
Gujarat
Uttar Pradesh
Punjab
Bihar
Orissa
JharkhandWest
Bengal
SikkimArunachalPradesh
Assam
Tripura
Meghalaya
Mizoram
Manipur
Nagaland
Goa
Pondicherry
Uttaranchal
Jammu&
Kashmir
Haryana
HimachalPradesh
Delhi
Chhattisgarh
Telangana
2015: NGT bans plying of gasoil & gasoline tourist vehicles on the Manali-Rohtang highway; state deploying CNG & electric buses for tourism
2012: Gujarat HC orders private and passenger vehicles to be converted to CNG within a year
2001: Mumbai HC orders phasing out of transport vehicles older than 15 years and phasing out or conversion to CNG of transport vehicles older than 8 years
2015: Karnataka HC orders the State government to run public transport buses in a time-bound manner
2016: NGT bans light and heavy gasoil vehicles older than 10 years in six major cities & ban on registration of gasoil vehicle with capacity of more than 2,000cc except for public transport & local authorities
1998: Supreme Court orders use of CNG for public transportation in Delhi 2015: NGT orders restriction of registration of gasoil vehicles in Delhi 2015-16: Supreme Court orders conversion of aggregators’ cabs to CNG; then relaxes to allow until permits are valid
2016: NGT asks UP government to consider introducing CNG vehicles in congested cities
Source: Elara Securities Research
15
Elara Securities (India) Private Limited The Sequel
Government wakes up
CGD Bids
Promoting CGD Smart Cities
Smart cities: The government aims to improve quality of life through
planned infrastructure development; identifies 100 cities for
implementation
Role of natural gas: Mandates natural gas for residential use; calls for
earmarking of open sites for setting up CNG stations across the city
Newer applications: Centralized infrastructure could result in newer
applications like chillers; already in use in GIFT city, Gujarat
Green CNG corridors
Deregulates auto fuels: Gasoline deregulated in 2010 and gasoil in 2014;
limits subsidized LPG to 12 pa per family; DBTL purges ghost accounts
Favourable domestic gas pricing: Domestic gas prices linked to
international hub prices; ~40% weightage to Henry Hub, results in CNG being
50-60% cheaper
CGD gets priority: The government assures up to 110% supply of domestic
gas for CNG & PNG domestic
Green Corridors: Identifies several highways where CNG stations can be set
up to create CNG corridors; direct boost of 35% to CNG volume
CGD bid rounds 1-7: Awarded 27 areas prior to formation of PNGRB*; all
except Kolkata are operational. Since 2009, 100 cities offered; 40 did not
receive any bids. 11 geographical areas among these operational
Draft Marketing Guidelines, 2015: Envisages giving marketing rights
of CNG to anyone eligible for selling gasoline, gasoil & ATF in addition
to entities authorized by PNGRB or the Central government
CGD penetration: Out of 27 cities awarded prior to formation of PNGRB*,
26 are operational. From 33 cities awarded post formation of PNGRB, 11 are
operational. Regulator turns strict enforcer. Jay Madhok, which failed to
meet terms for Ludhiana & Kutch East, forfeited bank guarantee & lost cities
Good potential even in mature cities: After achieving ~4.1mmscmd of
sales in Delhi, we expect 7-8% growth in the next two years, led by
restrictions on gasoil vehicles and conversion of private vehicles to CNG.
Government focused on PNG domestic to reduce access to subsidized LPG.
Mumbai, with sales volume of 2.4mmscmd, expects high volume
growth led by higher penetration & likely regulatory changes
Note: *Petroleum and Natural Gas Regulatory Board
16
Elara Securities (India) Private Limited The Sequel
Domestic gas attractively priced
1.5
3.5
5.5
7.5
9.5
Jun-1
0
Oct
-10
Feb-1
1
Jun-1
1
Oct
-11
Feb-1
2
Jun-1
2
Oct
-12
Feb-1
3
Jun-1
3
Oct
-13
Feb-1
4
Jun-1
4
Oct
-14
Feb-1
5
Jun-1
5
Oct
-15
Feb-1
6
Jun-1
6
(USD/mmBtu)
Henry Hub Domestic gas price
Domestic gas price drops
CNG prices decline post confirmed allocation of domestic gas
30 40 50 60 70 80
0
15
30
45
60
Jun-1
0
Oct
-10
Feb-1
1
Jun-1
1
Oct
-11
Feb-1
2
Jun-1
2
Oct
-12
Feb-1
3
Jun-1
3
Oct
-13
Feb-1
4
Jun-1
4
Oct
-14
Feb-1
5
Jun-1
5
Oct
-15
Feb-1
6
Jun-1
6
(INR/lit) (INR/kg)
CNG Diesel-RHS Petrol-RHS
CNG price collapses due to firm allocation from government of domestic gas
Source: PPAC, IGL, Elara Securities Research
Source: Bloomberg, PPAC, Elara Securities Research
Higher savings for vehicles
Source: Elara Securities Research
Savings for residential & commercial consumers
Source: Elara Securities Research
0%
20%
40%
60%
80%
Gasoline Gasoil Auto LPG
Savings using CNG vs auto fuels
0%
5%
10%
15%
20%
25%
30%
LPG - subsidised LPG - non-subsidised
Savings using CNG vs cooking fuel
17
Elara Securities (India) Private Limited The Sequel
CGD: 37 operational to date
1
234
5
6
7
8
109
11
12
1314
15
16
17
18
19
20
21
22
2324
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
45
4647
48
49
50
51
53
44
52
54
55
56
57
58
5960
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
77
76
78
79
80
81
82
83
84
85
86
87
8889
1 Agartala 31 Kota 61 Tumkur
2 Upper Assam 32 Mathura 62 Haridwar
3 Firozabad (TTZ) 33 Sonepat 63 Dharwad
4 Agra 34 Dewas 64 Udhamsingh nagar
5 Hyderabad 35 Meerut 65 Saharanpur
6 Indore 36 Allahabad 66 Ahmedabad
7 Gwalior 37 Chandigarh 67 Ramabai Nagar
8 Ghandinagar 38 Ghaziabad 68 Ratnagiri
9 Mehsana 39 Jhansi 69 Amreli
10 Sabarkantha 40 Yanam 70 Bhatinda
11 Pune incld Pimpri-Chichwad 41 Asansol-Durgapur 71 Patan
12 Kanpur 42 Bhavnagar 72 Yamunanagar
13 Bareilly 43 Kutch East 73 Rewari
14 Delhi 44 Kutch West 74 North Goa
15 Mumbai 45 Jamnagar 75 Rupanagar
16 Vijaywada 46 Ludhiana 76 Fatehgarh Sahib
17 Thane & adjoining areas 47 Jalandhar 77 Dahej
18 Kolkata 48 Ernakulam 78 Dahod
19 Lucknow 49 Bengaluru 79 Dhar
20 Anand incld Kanjari & Vadtal 50 Raigarh 80 Ahmednagar
21 Valsad 51 Pune 81 Banaskantha
22 Hazira 52 Thane 82 Anand
23 Rajkot 53 Daman & Diu 83 Panchmahal
24 Surendranagar 54 Dadra & Nagar Haveli 84 Rohtak
25 Navsari 55 Panipat 85 Jaipur
26 Nadiad 56 Amritsar 86 Solapur
27 Khurja 57 East Godavari (excluding Kakinada) 87 Davanagere
28 Moradabad 58 Belgaum 88 Udaipur
29 Surat-Bharuch-Ankleshwar 59 Krishna 89 Bhopal
30 Kakinada 60 West Godavari (includes Rajahmundry)
Source: Petroleum & Natural Gas Regulatory Board, Elara Securities Research
Operational Not Operational
18
Elara Securities (India) Private Limited The Sequel
Green corridors – boost to volume
Target traffic between cities on national highways
Coverage likely to extend to national highways Need clarity on policy
Need for definite regulation: Although draft marketing guidelines were
published in March 2015, they have not taken the shape of regulation yet
Unanswered questions: Policy needs to be clear on authorization of entity,
marketing exclusivity and allocation of natural gas
2.8mmscmd of direct demand
Numerous stretches: Government has identified the following stretches-
Delhi-Agra-Lucknow-Kanpur, Delhi-Jaipur, Delhi-Chandigarh, Delhi-Haridwar,
Karanpur-Moradabad-Kashipur-Rudrapur, Vizag-Vijaywada, Allahabad-Kanpur-
Varanasi, Bengaluru-Mumbai-Pune
IGL & MGL biggest beneficiaries: Due to their geographical advantage,
IGL & MGL could see pickup in volume
High average daily traffic (ADT): We estimate an ADT of 15,000-62,000
on highways selected
Demand of 2.8mmscmd of CNG: Even if 20% of vehicles convert to CNG,
direct demand on these highways alone could increase by 2.8mmscmd, which
is ~35% of total CNG usage in the country
Indirect impact: CNG use on highways also would boost conversion of
vehicles inside cities, and, result in indirect increase in CNG sales volume
within cities
Expanding beyond cities: Currently, non-availability of gas on India’s
highways has curtailed the use of gas for inter-city traffic; CNG stations on
highways would increase CNG use on highways and intra-city
Existing fuel retail outlets offer cheaper infrastructure cost: ROs on
highways are much more spacious than those within cities; offer sufficient
space for CNG compressor and related infrastructure
19
Elara Securities (India) Private Limited The Sequel
Delhi-Agra-Lucknow-Kanpur green corridor (1 out of 8)
Auraiya
Firozabad 105km
143km
47km 57km
161km
Companies Traffic (ADT)
Estimated vol (mmscmd)
Delhi: IGL Agra: Green Gas Kanpur: CUGL Lucknow: Green Gas
28,582 0.5
Source: Elara Securities Research
For more details on the other seven green corridors, please visit the Appendix section
20
Elara Securities (India) Private Limited The Sequel
Green corridors to boost CNG demand by ~35%
Green CNG corridors Operating companies Average daily traffic (#)
Distance (km) Total vol (mmscmd)
Achievable vol (mmscmd)
Delhi-Agra-Kanpur-Lucknow Delhi: IGL; Agra: Green Gas; Kanpur: CUGL; Lucknow: Green Gas
28,582 513 2.3 0.5
Karanpur-Moradabad-Kashipur-Rudrapur
20,708 144 0.5 0.1
Vizag-Vijaywada Vizag: not authorized so far; Kovvur: BGL; Vijaywada: BGL
28,496 300 1.3 0.3
Delhi-Jaipur Delhi: IGL; Jaipur; Round 7 61,871 278 2.7 0.5
Delhi-Chandigarh Delhi: IGL; Chandigarh: IOCL-Adani 46,533 244 1.8 0.4
Delhi-Haridwar Delhi: IGL; Haridwar: GAIL/BPCL 16,540 223 0.6 0.1
Allahabad-Kanpur-Varanasi Allahabad: IOCL-Adani; Kanpur: CUGL; Varanasi: Not allocated
15,133 223 0.5 0.1
Bengaluru-Mumbai-Pune Mumbai: MGL; Pune: MNGL; Bengaluru: GAIL Gas
27,912 980 4.3 0.9
Total consumption 2.8
Additional volume inside
cities due to same vehicles
Source: Elara Securities Research
21
Elara Securities (India) Private Limited The Sequel
Smart cities – the new frontier
The roadmap towards “Smart”
The concept
Potential
Faster & cheaper implementation: Actual digging & ground refill cost is
INR 4,000-5,000/m while various approvals take the cost to INR 14,000-
15,000/m. Common utility corridor would help faster implementation & higher
penetration of PNG domestic
Boost to CNG volume: Emphasis on mass transportation and cleaner
environment would result in higher penetration of CNG
Newer applications: Possible use for expanding non-kitchen residential use
like district cooling systems, gas gensets for ensuring 24x7 power supply, co-
generation plants and backup for solar power plants
CGD & Smart cities mission
Smart City: Aims at “promoting cities that provide core infrastructure and
give a decent quality of life to its citizen, a clean and sustainable
environment and application of Smart Solutions”
Mandatory convergence: With Atal Mission for Rejuvenation & Urban
Transformation, Swachh Bharat Mission, National Heritage City Development
& Augmentation Yojana, Digital India, Skill development, Housing for all,
construction of museums, & other programs connected to social infrastructure
City gas network: Ensures uninterrupted supply of eco-friendly cooking
fuel- PNG domestic and cleaner transportation fuel in form of CNG
Common utility corridor to aid infrastructure development: Gas
pipelines can be laid along with other underground utilities like water,
electrical cables, optical fibre cables; common geographical information
system for all utilities
PNG domestic: mandatory piped gas network in the upcoming and new
residential colonies & apartments
CNG stations: Earmarking open plots for setting up CNG stations in Smart
cities for equitable availability of CNG throughout the city
States nominate cities
Cities prepare proposals for development
Centre selects cities for Smart City Challenge
Step 1:
Step 2:
Cities selected get funding of INR 5bn from the Centre and the right to levy a slew of taxation on citizens for funding
development plan
33 cities on their way to become "Smart"
Centre aims development of 100 "Smart" cities by 2020
22
Elara Securities (India) Private Limited The Sequel
Smart cities
Source: Ministry of Urban Development, Elara Securities Research
Kochi
Ludhiana
New Town Kolkata
Belagavi
Bhagalpur
Bhopal
Bhubaneshwar
Chennai
Coimbatore
Davanegere
Dharamshala
Faridabad
Greater Warangal
Guwahati
Imphal
Jabalpur
Jaipur
Panaji
Port Blair
Raipur
Ranchi
Solapur
Udaipur
Visakhapatnam
Agartala
Ahmedabad
Chandigarh
Indore
Kakinada
Lucknow
New Delhi Municipal Council
Pune
Surat
Operational CGDNot awarded for CGDAwarded for CGD, Not operational
23
Elara Securities (India) Private Limited The Sequel
New applications, low LNG prices to help
District cooling systems
Cogeneration & tri-generation plants
New applications, low LNG prices to rerate stocks
Low LNG prices: Global supply to rise by 140mn tonne pa in the next few
years. Global demand of 245mn tonnes in 2015 to decline as Japan and
Korea, accounting for ~50% of total trade, restart their nuclear reactors
Industrial applications: As economy starts to revive, low LNG prices would
result in pickup of demand from the industrial segment. We have already
seen IGL’s PNG industrial demand stabilizing at 0.44mmscmd despite low fuel
oil prices
Although newer applications would take time and may not impact earnings
significantly until FY18 as the roadmap starts clearing, we expect stocks to
rerate
2W, gas geysers, marine applications, LNG trucking
Huge potential: Finds use in several small and medium scale industries like
sugar, paper, urban waste treatment, chemicals, fertilizers, textiles, hospitals,
hotels, large residential projects, food processing, malt & brewery industries
Erratic power and low LNG prices to help: More economical than gasoil;
CHP* had lost its charm due to the decline in domestic gas production and
increased dependence on high-cost LNG. However, a structural decline in LNG
prices to help pickup in CHP
Two-wheelers: Trial runs are being conducted currently in Delhi. We
estimate a demand of 0.5mmscmd in Delhi alone
Gas geysers: CGD companies are looking to promote use of gas for geysers
Miscellaneous applications: Although in the nascent stage, the
government is mulling the use of LNG for marine applications as well as in
LNG-run trucks
The concept: Uses chilled water production and distribution from a central
source for facilitating air conditioning; does not use any CFC; may be
electricity- or gas-driven
Savings potential: 35% lower than conventional air-cooled, air conditioners
and 20% lower than individual water-cooled, air-conditioning systems
GIFT City, Ahmadabad: Gujarat International Finance Tec-City is the first
project in India which is using gas-based district cooling system
Note: *CHP stands for Cogeneration of Heat & Power
24
Elara Securities (India) Private Limited The Sequel
Savings potential of combined heat & power (CHP)
147 units against 100 units for CHP
Combined heat & power
CHP fuel
Electrical 30
Thermal 45
Power plant
Boiler
Efficiency: 33%
Efficiency: 80%
Fuel to power plant: 91
Boiler fuel: 56
Loss
: 61
Loss: 1
1
CHP fuel: 100
Loss: 2
5
Source: US Environmental Protection Agency, Elara Securities Research
25
Elara Securities (India) Private Limited The Sequel
DLF City
100MW gas-based captive power plant: Uses gas instead of gasoil for
providing uninterrupted power supply
Vapor absorption machines: Waste heat from engines and turbines is
converted into chilled water for providing air conditioning
Savings potential: Costs ~40% lower than gasoil, no CFCs and higher
efficiency as conventional systems have ~30% transmission losses
Cogeneration plant at DLF City, Gurugram
Source: DLF, Elara Securities Research
26
Elara Securities (India) Private Limited The Sequel
GIFT City – India’s first & only district cooling system
Capacity: Centralized air conditioning
designed for cooling load of 2,70,000TR.
Uses gas based chillers, no CFCs
Benefits: Reduces noise and vibration, low
energy costs, low maintenance cost,
efficiency through economies of scale
DCS system at GIFT City
Source: GIFT, Elara Securities Research
27
Elara Securities (India) Private Limited The Sequel
Two-wheelers on CNG
Trial runs: Government has given 50 bikes fitted with CNG kits to Domino’s
Pizza for trial runs
Supply chain: CNG kits are approved by Automotive Research Association
of India and are being manufactured by Ituk Manufacturing
Configuration: The CNG kit comprises two cylinders each with capacity of
1kg of CNG and support running of upto 120km on a single fill
Benefits: CNG Honda Activa cost is INR 65,000-75,000. Running cost is
expected to be INR 0.61/km vs INR 1.3/km for gasoline
Huge scope: 4.7mn two-wheelers in Delhi alone in 2012. We estimate
demand of 0.5mmscmd if 20% of these convert.
Pilot program launched
Distance travelled/yr (km) 9,125
Mileage (km/kg) 60
Gas consumed by one bike/yr (kg) 152
Gas consumed by one bike/yr (scm) 198
Total number of bikes in Delhi (mn) 4.7
Conversion into CNG (%) 20
CNG bikes (mn) 0.9
Total gas consumed in Delhi (mmscmd) 0.5
Source: Ministry of Petroleum & Natural Gas, Elara Securities Research Source: Elara Securities Research
Estimated CNG demand from two-wheelers in Delhi (2012)
Source: Ministry of Petroleum & Natural Gas, Elara Securities Research
28
Elara Securities (India) Private Limited The Sequel
Huge potential
Demand potential in leading cities
Avg distance travelled per day (km) 25
Distance travelled/yr (km) 9,125
Mileage (km/kg) 60
Gas consumed by one bike/yr (kg) 152
Gas consumed by one bike/yr (scm) 198
Delhi Mumbai Pune Ahmedabad Bengaluru
Total number of bikes (mn) (data as on March 2012) 4.7 1.1 1.7 1.2 2.9
Conversion into CNG (%) 20 20 20 20 20
CNG bikes (mn) 0.9 0.2 0.3 0.2 0.6
Total gas consumed (mmscmd) 0.5 0.1 0.2 0.1 0.3
Source: Journal of Power Sources, RTO data, Elara Securities Estimate
29
Elara Securities (India) Private Limited The Sequel
LNG for inland bunkering
LNG bunkering in China India also plans to open LNG bunkering stations
Source: China Classification Society, Elara Securities Research Source: Elara Securities Research
30
Elara Securities (India) Private Limited The Sequel
LNG trucking
China has already started LNG bunkering since 2014 India could use LNG trucks on Eastern and Western highways
LNG trucking in China: China has a vast network of ~2,500 LNG
refuelling stations. ~100,000 trucks use LNG in China currently and the
number is expected to grow to 350,000 in two years
Source: ENN Energy, Elara Securities Research Source: Elara Securities Research
31
Elara Securities (India) Private Limited The Sequel
Low LNG prices to help
Largest importers restart nuclear reactors
Addition of 140mn tonnes of liquefaction capacity LNG prices decline due to increase in supply
Australia to lead: With LNG exports of 29.4mn tonnes in 2015, Australia
emerges as the second-largest exporter globally. With 53.8mn tonnes pa
of liquefaction capacity under construction, it would become the largest
exporter by 2020
US not far behind: A total of 62mn tonnes pa of liquefaction capacity is
under construction in the US while Russia (16.5mn tonnes pa), Malaysia
(6.3mn tonnes pa), Indonesia (0.5mn tonnes pa) and Cameroon (2.4mn
tonnes pa) account for the rest
Japan starts three nuclear reactors: Japan has already started
Sendai-1 & 2 nuclear reactors. Takahama 3 & 4 reactors restarted but
shut due to technical glitch. Ikata-3 is likely to start commercial operations
by August 2016. It is estimated that Japan’s current consumption of
~88mn tonnes pa would decline to ~62mn tonne pa by 2030.
South Korea adding nuclear capacity: Eight nuclear reactors, each
with a capacity of 1,400MW, are under various stages of construction
Source: International Gas Union, Elara Securities Research
Source: NRA, Reuters, Elara Securities Research
Source: Platts, Elara Securities Research
3
8
13
18
23
Jan-1
3
Mar-
13
May-1
3
Jul-13
Sep-1
3
Nov-1
3
Jan-1
4
Mar-
14
May-1
4
Jul-14
Sep-1
4
Nov-1
4
Jan-1
5
Mar-
15
May-1
5
Jul-15
Sep-1
5
Nov-1
5
Jan-1
6
Mar-
16
May-1
6
(USD/mmBtu)
Spot LNG Fuel Oil
Fuel oil becomes expensive to LNG After remaining at ~USD
15/mmBtu, LNG prices drop to ~USD 5/mmBtu
32
Elara Securities (India) Private Limited The Sequel
Key risks to our call
Several CGD players like Jay Madhok have not been making progress in CGD areas awarded. PNGRB has been revoking such awards. Any
delay in auctioning, awarding and implementation would prevent CGD from being established across the country.
Currently spot LNG prices hover at ~USD 5-6/mmBtu. We believe they would remain structurally low for long time to come. If for any
reason, LNG prices rise, then LNG consumption in industries may not be economical.
Crude prices have been very volatile. They currently hover at ~USD 45/bbl. With crude prices remaining low, it can dis-incentivize customers
to either not convert to natural gas or switch back to alternate fuels, in absence of regulatory enforcement.
The Dahej 5mn tonne pa expansion is expected to be completed by December 2016. GSPC LNG 5mmtpa Mundra terminal is expected to be
commissioned by mid-2017. With domestic supply not expected to increase in the near term, any delay in these two could be a setback to
India’s gas story.
33
Elara Securities (India) Private Limited The Sequel
Global peer valuation (Consensus)
Source: Bloomberg, Elara Securities Estimate
EV/EBITDA (x) P/BV (x) P/E (x)
FY17E / CY16E FY18E / CY17E FY17E / CY16E FY18E / CY17E FY17E / CY16E FY18E / CY17E
Indraprastha Gas 10.1 9.4 3.4 3.0 18.6 16.8
Gujarat State Petronet 7.4 7.2 1.7 1.5 11.2 10.2
Gail India 8.8 7.6 1.3 1.2 13.8 11.2
Petronet LNG 11.1 8.2 3.3 2.8 20.0 14.2
Gujarat Gas 7.4 7.2 1.7 1.5 11.2 10.2
Mahanagar Gas 9.4 8.7 3.0 2.7 15.5 14.2
China Gas Holdings 11.7 10.5 2.9 2.4 14.5 12.8
Hong Kong & China Gas 21.1 20.0 3.1 3.0 24.5 24.1
Towngas China 11.0 10.5 0.8 0.8 9.2 9.0
China Resources Gas Group 8.6 7.8 2.3 2.0 13.6 12.1
Enn Energy Holdings 7.6 7.1 2.1 1.8 11.7 10.8
Tokyo Gas 7.3 6.6 0.9 0.9 20.9 17.0
Osaka Gas 6.5 7.2 0.9 0.9 15.1 17.1
Toho Gas 9.1 10.2 1.6 1.6 25.3 28.0
Korea Gas 11.3 10.6 0.4 0.4 10.6 8.8
Kyungdong City Gas
Sempra Energy 10.9 9.6 2.0 1.9 20.7 17.6
New Jersey Resources 13.8 11.3 2.7 2.2 20.3 19.1
Piedmont Natural Gas 14.7 12.6 2.8 2.5 28.8 25.2
Snam Spa 11.8 11.6 2.3 2.2 16.1 15.7
Atmos Energy 10.6 9.7 2.2 2.1 22.0 20.6
Enagas SA 12.3 12.6 2.5 2.5 15.3 15.1
Duke Energy 10.2 9.8 1.4 1.4 17.7 16.9
Cms Energy 9.8 9.3 2.7 2.5 20.1 18.7
Centerpoint Energy 8.3 7.8 2.8 2.7 18.7 17.7
34
Elara Securities (India) Private Limited The Sequel
Valuation matrix – P/E vs EPS CAGR
India gas firms offer attractive valuation vs global peers, PE & EPS CAGR (FY18/CY17)
Source: Bloomberg, Elara Securities Estimate
• Emphasis on greener fuels would result in a
higherer EPS CAGR for India firms during
FY16-18E than global peers
• India companies available at lower P/E of
14x than global peers at 19x
• Structural reforms, low domestic & spot
LNG prices and high latent demand
position India firms in a structurally long-
term bull cycle
Gujarat Gas
IGL
GSPL
GAIL
Petronet LNG
Mahanagar Gas
5
10
15
20
25
(10) (5) 0 5 10 15 20 25 30 35 40
P/E
(x)
EPS CAGR (%)
35
Elara Securities (India) Private Limited The Sequel
Valuation matrix – P/BV vs ROE
India gas companies are available at reasonable valuation vs global peers PBV (x) and ROE (%) (FY18/CY17)
Source: Bloomberg, Elara Securities Estimate
Gujarat Gas
IGL
GSPL
GAIL
Petronet LNG
Mahanagar Gas
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
0 5 10 15 20 25 30
P/B
V (
x)
ROE (%)
Indian companies available at attractive relative valuation compared to peers globally
36
GUJARAT GAS – SET FOR GREENER PURSUITS
Elara Securities (India) Private Limited The Sequel
Gujarat Gas
Investment summary
Promising new areas: The company has won Amreli, Ahmedabad rural, Dahod, Panchmahal and Dahej recently. The regions are contiguous and would be operational
soon with low capex. We expect peak potential of 1.0-1.5mmscmd from Ahmedabad rural, 1.0mmscmd from Dahej & 0.3-0.4mmscmd from each of other three.
Demand stabilization from Morbi: Morbi has seen fresh FDI in vitrified tiles. GGAS has signed contracts with ~25 new customers, which would add 0.2mmscmd near
term. Current consumption stands at 2.0mmscmd and most consumers are running at 50-55%. As ceramic demand rises and utilization increases, we expect demand rise.
New applications to drive growth: Earlier, the company had witnessed good demand from the CHP segment in the Surat-Ankaleshwar-Bharuch industrial belt. However,
with improvement in power availability and rise in LNG prices, there is no demand currently. The Thane industrial area faces erratic power supply and could add demand
from the CHP segment. GIFT City also has installed a district cooling system. The start of GIFT city and similar such applications would again lift demand.
Good volume growth likely: Morbi has demand potential of 5.0-6.0mmscmd. As oil prices rise, industrial production increases and regulatory enforcement picks up, 10-
15% volume growth is easily achievable, aided by volume from new areas.
Valuation
We expect an EPS CAGR of ~88% over FY16-18E, aided by volume growth and availability of cheaper domestic gas for CNG. We recommend Buy with a TP of INR 751 based on
19x FY18E EPS of INR 40.4.
Key risk
Sustained low crude oil prices, an increase in LNG prices and poor industrial pickup are key downside risks
Key Financials
CMP: INR 616 TP: INR 751 Upside: 22%
GGAS IN Mcap: USD 1.3bn Buy
Note: pricing as on 12 August 2016; Source: Company, Elara Securities Estimate
YE March
Revenue (INR mn)
YoY (%)
EBITDA (INR mn)
EBITDA margin (%)
Adj PAT (INR mn)
YoY (%)
Fully DEPS (INR)
ROE (%)
ROCE (%)
P/E (x)
EV/EBITDA (x)
FY15 90,063 15.5 11,062 12.3 4,436 1,460.3 32.2 22.3 17.2 19.1 9.1
FY16 61,059 (32.2) 7,249 11.9 1,529 (65.5) 11.1 7.3 7.6 55.5 14.0
FY17E 56,497 (7.5) 9,380 16.6 3,424 123.9 24.9 14.3 10.6 24.8 10.8
FY18E 64,422 14.0 12,456 19.3 5,561 62.4 40.4 19.2 14.4 15.2 8.1
38
Elara Securities (India) Private Limited The Sequel
Painting Gujarat green
Growing across Gujarat and nearby areas
With recently won Amreli, Ahmedabad rural, Dahej, Dahod and Panchmahal,
Gujarat Gas has more than three-quarters of the state under
coverage
Outside Gujarat, it has presence at Dadra & Nagar Haveli and Thane,
which are contiguous. This would result in lower cost and fast penetration in
new areas
Kutch East, which was earlier awarded to Jay Madhok, has been revoked
and presents a good opportunity as and when it comes up for bidding
Gujarat Gas
Other CGDs
EOI Submitted
No bidding yet
Kutch
Banas Kantha
Patan
Mahesana
Sabar Kantha
Arvalli
Mahisagar
Dahod Panch Mahal
Chhota Udaipur
Ahmadabad Kheda
Gandhinagar
Anand
Vadodara
Bharuch
Surat Tapi
Navsari
Valsad
Bhavnagar
Amreli
Gir Somnath
Junagarh
Porbandar
Jamnagar
Rajkot
Morvi
Devbhumi Dwarka
Surendranagar
Botad
The Dangs
Narmada
Daman
Dadra & Nagar Haveli
Thane
Ahmadabad rural under Gujarat Gas and Urban
under Adani Gas
39
Source: Company, Elara Securities Research
Elara Securities (India) Private Limited The Sequel
Large access to industries
Gujarat: most industrialized state
Leader in sectors such as chemicals, petrochemicals, dairy,
pharmaceuticals, cement & ceramics, gems & jewellery, textiles and
engineering
Contributes quarter of total goods exported from the country
Ranks first in total area under SEZ in India
Longest coastline of 1,600km in the country Kutch
Banas Kantha
Patan
Mahesana
Sabar Kantha
Arvalli
Mahisagar
Dahod Panch Mahal
Chhota Udaipur
Ahmedabad Kheda
Gandhinagar
Anand
Vadodara
Bharuch
Surat Tapi
Navsari
Valsad
Bhavnagar
Amreli
Gir Somnath
Junagarh
Porbandar
Jamnagar
Rajkot
Morvi
Devbhumi Dwarka
Surendranagar
Botad
The Dangs
Narmada
Daman
Dadra & Nagar Haveli
40
Source: Company, Elara Securities Research
Elara Securities (India) Private Limited The Sequel
Delhi-Mumbai Industrial Corridor
Source: DMIC Development Corporation, Elara Securities Research
Ahmedabad Dholera Investment region
DMIC to offer long-term growth
opportunity
62% of state is covered within the
influence area
Five nodes identified for
development around dedicated freight
corridor
Ahmedabad-Dholera investment
region
Vadodara-Ankaleshwar industrial
area
Bharuch-Dahej investment region
Surat-Navsari industrial Area
Valsad-Umbergaon industrial area
The regions have the potential for
engineering, ceramics, chemicals, pharma,
gems & jewellery, textiles and automobile
industries
Vadodara-Ankleshwar Industrial Area
Bharuch-Dahej Industrial Area
Surat-Navsari Industrial Area
Valsad-Umbergaon Industrial Area
41
Elara Securities (India) Private Limited The Sequel
Lifting of moratorium would increase demand
Source: CPCB, Elara Securities Research
Gujarat has six industrial areas classified as critically polluted
In the study conducted in 2009, Ankleshwar, Vapi, Ahmedabad, Vatva,
Bhavnagar and Junagarh were declared as critically polluted
Development projects were banned and action plan was chalked out for
reducing pollution
Natural gas to the rescue: at the core at reducing air pollution
Vapi
Ankaleshwar
Ahmedabad
Bhavnagar Junagarh
Vatva
42
Elara Securities (India) Private Limited The Sequel
Volume growth to return
Source: Gujarat Gas, Elara Securities Research
PNG volume growth
Over FY12-14 due to high RLNG prices, industrial consumers have
shifted to alternate fuels, which are expected to come back with softening
in spot LNG prices
We expect a pickup in industrial activity as the economy bottoms out,
driving consumption of natural gas
Environmental concerns discouraging the use of alternate polluting fuels,
such as fuel oil
Morbi currently uses ~2.0mmscmd of gas with most units running at 50-
55% utilization. Higher utilization would almost double demand
New gas could add a total of ~3.5mmscmd of sales
CNG volume growth
The company currently has a total of 230 CNG outlets and plans to add 25
CNG stations in FY17
CNG penetration is very low at ~10% in Gujarat while Delhi & Mumbai
have a higher penetration of ~20%
Huge potential for CNG volume growth
High growth in industrial demand expected
Source: Company, Elara Securities Estimate
Source: Company, Elara Securities Estimate
4.0
4.5
5.0
5.5
FY14 FY15 FY16 FY17E FY18E
(mmscmd)
Industrial / commercial
Prices touch highs of INR 42/scm in FY14 from the lows of INR 26/scm in FY12. FY16 again saw low fuel oil prices and poor industrial demand
0.4
0.5
0.6
0.7
0.8
0.9
1.0
FY14 FY15 FY16 FY17E FY18E
(mmscmd)
CNG
Demand growth expected from possible regulatory restrictions
43
Elara Securities (India) Private Limited The Sequel
PAT to almost double during FY16-18E
EBITDA/scm to improve
PAT to almost double over FY16-18E
Volume growth of 10-15% over FY16-18E
EBITDA CAGR of 30% over FY16-18E
Source: Company, Elara Securities Estimate
Source: Company, Elara Securities Estimate
Source: Company, Elara Securities Estimate
Source: Company, Elara Securities Estimate
5.0
5.5
6.0
6.5
7.0
7.5
FY14 FY15 FY16 FY17E FY18E
(mmscmd)
Total vol
2.0
2.5
3.0
3.5
4.0
4.5
5.0
FY14 FY15 FY16 FY17E FY18E
(INR)
EBITDA/scm
FY14 takes a hit due to high LNG prices
2
502
1,002
1,502
FY14 FY15 FY16 FY17E FY18E
(INR mn)
EBITDA
44
0
1,000
2,000
3,000
4,000
5,000
6,000
FY14 FY15 FY16 FY17E FY18E
(INR mn)
PAT
Elara Securities (India) Private Limited The Sequel
Gujarat Gas: valuation
One-year forward P/BV of Gujarat Gas One-year forward P/E of Gujarat Gas
FY14 FY15 FY16 FY17E FY18E
Volume (mmscmd) 5.9 6.7 5.6 6.2 7.1
EBITDA/scm (INR) 2.7 4.5 3.5 4.2 4.8
Key assumptions
Target P/E (x) 18.6
EPS (INR) 40.4
Target Price (INR) 751
Valuation (FY18E)
Source: Company, Elara Securities Estimate
Source: Company, Bloomberg, Elara Securities Estimate
Source: Elara Securities Estimate
Source: Company, Bloomberg, Elara Securities Estimate
14x
16x
18x
20x
22x
200
300
400
500
600
700
18-S
ep-1
5
9-O
ct-1
5
30-O
ct-1
5
20-N
ov-1
5
11-D
ec-
15
1-J
an-1
6
22-J
an-1
6
12-F
eb-1
6
4-M
ar-
16
25-M
ar-
16
15-A
pr-
16
6-M
ay-1
6
27-M
ay-1
6
17-J
un-1
6
8-J
ul-16
29-J
ul-16
(INR)
CMP
2.5x
3.0x
3.5x
4.0x
400
500
600
700
800
18-S
ep-1
5
9-O
ct-1
5
30-O
ct-1
5
20-N
ov-1
5
11-D
ec-
15
1-J
an-1
6
22-J
an-1
6
12-F
eb-1
6
4-M
ar-
16
25-M
ar-
16
15-A
pr-
16
6-M
ay-1
6
27-M
ay-1
6
17-J
un-1
6
8-J
ul-16
29-J
ul-16
(INR)
CMP
45
Elara Securities (India) Private Limited The Sequel
Gujarat Gas: key financials
Note: pricing as on 12 August 2016; Source: Company, Elara Securities Estimate
Income Statement (INR mn) FY15 FY16 FY17E FY18E
Net operating income 90,063 61,059 56,497 64,422
EBITDA 11,062 7,249 9,380 12,456
Depreciation 2,377 2,457 2,888 3,124
EBIT 8,685 4,792 6,492 9,332
Interest cost 3,332 2,460 2,229 1,998
Other income 1,071 447 847 966
PBT 6,415 2,522 5,111 8,301
Exceptional items 10 256 0 0
Less: taxation 1,979 993 1,687 2,739
Effective tax rate (%) 30.8 39.4 33.0 33.0
PAT 4,436 1,529 3,424 5,561
Balance Sheet (INR mn) FY15 FY16 FY17E FY18E
Equity Capital 1,377 1,377 1,377 1,377
Reserves 18,532 19,651 22,592 27,590
Total Borrowings 14,908 17,076 17,076 14,576
Deferred Taxes 3,528 4,103 4,103 4,103
Others 5,614 6,100 6,661 7,586
Total Liabilities 43,959 48,306 51,808 55,230
Fixed assets 48,441 51,423 55,041 58,417
Investments 10,990 1,620 1,620 1,620
Current Assets 9,495 7,706 7,608 8,001
Less: Current Liabilities 24,967 12,443 12,462 12,808
Net Working Capital (15,472) (4,737) (4,853) (4,807)
Total Assets 43,959 48,306 51,808 55,230
Cash Flow Statement (INR mn) FY15 FY16 FY17E FY18E
Operating Cash Flow 8,162 (7,387) 6,609 9,496
Capex (3,382) (5,440) (6,506) (6,500)
Free Cash Flow 4,780 (12,827) 103 2,996
Investing Cash Flow (5,963) 3,930 (6,506) (6,500)
Financing Cash Flow (1,938) 1,757 (483) (3,064)
Net Change in Cash 262 (1,700) (380) (68)
Opening Cash 2,116 2,378 678 298
Closing Cash 2,377 678 298 231
Ratio Analysis FY15 FY16 FY17E FY18E
Income statement ratios (%)
Revenue growth 15.5 (32.2) (7.5) 14.0
EBITDA growth 92.7 (34.5) 29.4 32.8
Adj PAT growth 1,460.3 (65.5) 123.9 62.4
EBITDAM 12.3 11.9 16.6 19.3
Adj net margin 4.9 2.5 6.1 8.6
Return & liquidity ratios
Interest Coverage Ratio (x) 2.6 1.9 2.9 4.7
Net debt/Equity (x) 0.2 0.8 0.7 0.5
ROE (%) 22.3 7.3 14.3 19.2
ROCE (%) 17.2 7.6 10.6 14.4
Per share data & valuation ratios
Adj EPS (INR) 32.2 11.1 24.9 40.4
Adj EPS growth (%) 1,460.3 (65.5) 123.9 62.4
BVPS (INR) 145 153 174 210
DPS (INR) 5.0 2.5 3.0 3.5
P/E (x) 19.1 55.5 24.8 15.2
EV/EBITDA (x) 9.1 14.0 10.8 8.1
P/BV (x) 4.3 4.0 3.5 2.9
Dividend Yield (%) 0.8 0.4 0.5 0.6
46
Elara Securities (India) Private Limited The Sequel
Coverage History
Date Rating Target Price Closing Price
1 15-Sep-2015 Buy INR 910 INR 646
2 5-Nov-2015 Buy INR 704 INR 556
3 1-Jan-2016 Accumulate INR 704 INR 627
4 8-Feb-2016 Accumulate INR 623 INR 544
5 17-May-2016 Accumulate INR 590 INR 518
6 12-Aug-2016 Buy INR 751 INR 616
1
2
3
4
5
6
400
450
500
550
600
650
700
Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16
Not Covered Covered
47
INDRAPRASTHA GAS – TIME TO TANK UP
Elara Securities (India) Private Limited The Sequel
Indraprastha Gas
Key Financials
Note: pricing as on 12 August 2016; Source: Company, Elara Securities Estimate
CMP: INR 676 TP: INR 845 Upside: 25%
IGL IN Mcap: USD 1.4bn Buy
YE March
Revenue (INR mn)
YoY (%)
EBITDA (INR mn)
EBITDA margin (%)
Adj PAT (INR mn)
YoY (%)
Fully DEPS (INR)
ROE (%)
ROCE (%)
P/E (x)
EV/EBITDA (x)
FY15 36,810 (6.1) 7,930 21.5 4,377 21.5 31.3 20.9 18.0 21.6 11.4
FY16 36,858 0.1 7,717 20.9 4,162 (4.9) 29.7 17.2 15.3 22.7 11.7
FY17E 40,901 11.0 8,923 21.8 5,066 21.7 36.2 18.1 15.6 18.7 10.1
FY18E 43,742 6.9 9,753 22.3 5,784 14.2 41.3 17.8 14.8 16.4 9.2
Investment summary
Volume CAGR of 7-8% over FY16-18E: We expect CNG volume CAGR of 7-8% over FY15-18E, with a pickup in conversion to CNG among private cars, taxis and auto
rickshaws. Addition of buses would result in a ~10% rise in CNG volume growth. Also, with the addition of ~120,000 PNG domestic consumers annually over the next three
years and an arrest in decline of PNG industrial volume due to benign spot LNG prices, we expect overall volume growth of 7-8% over FY16-18E. Recently awarded Rewari
offers a peak potential of ~2mmscmd.
New applications to drive volume in medium term: The company is looking at new applications like CHPs, VAMs & two-wheelers. We estimate two-wheelers may
consume 0.5mmscmd of CNG. While it is difficult to gauge demand growth from these applications, we believe it will result in higher rerating of the stock.
Favorable economics: low domestic prices and rise in auto fuels have led to savings of up to 65% over liquid fuels. We expect EBITDA/scm to rise to INR 5.7-5.8 over
FY17-18E, with rise in demand and better pricing power in the industrial segment.
Robust free cashflow: With CGD infrastructure laid across most of Delhi, IGL’s high capex phase is over and will generate free cash flow of INR 15bn over FY16-18E.
Valuation
In line with global peers, we increase target multiple of IGL from 15x to 19x to accommodate for volume growth that would subsequently come from new applications and put
further emphasis on curbing pollution. We recommend Buy with a target price of INR 845 on 19x FY18E consolidated EPS of INR 45.7.
Key risks
Possible decline in price of alternate fuels resulting in poor pickup in industrial sales. North Delhi Municipal Corporation has demanded way leave facility charge.
49
Elara Securities (India) Private Limited The Sequel
IGL: CNG catches up
CNG volume CAGR of 7% CAGR over FY16-18E Quarterly volume growth
Source: Company, Elara Securities Estimate Source: Company, Elara Securities Research
Since December 2015, the Delhi government has twice implemented plying of vehicles with odd/even registration plates on alternate days for a period of 15 days. CNG
vehicles, however, were exempted from the ruling. This has resulted in higher conversion of private vehicles to CNG
CNG prices are down from INR 38.35/kg in July 2015 to INR 36.85/kg in July 2016 while gasoil prices increased 10% with a marginal decline in gasoline
prices. We expect the recent decline in oil prices to be short-lived. As oil prices rise, we would see further increase in liquid fuel prices. Comparatively, due to high
weightage of Henry Hub in the calculation of domestic gas price, we do not expect a sharp rise in CNG prices
NGT has put further restrictions on registration of gasoil vehicles in Delhi. This would further boost CNG sales. Supreme Court recently allowed aggregators to
run non-CNG vehicles until their permits expire. Most vehicles have a permit of 3-5 years. We expect this conversion to add 0.24mmscmd of demand.
Even without bus additions, management guides 7-8% volume growth. With bus additions, we may see a higher trajectory of ~10% growth in CNG
Opened 60 CNG stations post FY16 until now, taking the total number of CNG stations to 400. This may reduce queuing time, thereby increasing conversion
Green corridors of Delhi-Agra-Lucknow-Kanpur, Delhi-Jaipur, Delhi-Chandigarh & Delhi-Haridwar likely to boost volume further
The current CNG pilot for two-wheelers, if successful, would result in additional 0.5mmscmd of demand
-5%
0%
5%
10%
15%
20%
25%
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
CNG volume growth
0
5
10
15
20
0
1
2
3
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
(%) (mn kgs/day)
Volumes (LHS) Growth
50
Elara Securities (India) Private Limited The Sequel
IGL: growth drivers for PNG domestic
Source: Company, Elara Securities Research
Domestic PNG
Strong push by the government to increase PNG penetration as one
of the means of reducing access to subsidized LPG
Strong domestic customer addition at ~75,000 in FY16, which is
expected to grow to ~120,000 annually over the next two years.
The company has commissioned a study to evaluate new uses of gas. To
date, there has not been any focus on gas geysers, CHPs. We believe focus
on such applications will increase.
40% rise over the past eight quarters
Source: Company, Elara Securities Estimate
Domestic customer additions to pick up
14
16
18
20
22
24
Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16
(mmscm)
PNG-domestic consumption
0
30,000
60,000
90,000
120,000
150,000
0
200,000
400,000
600,000
800,000
1,000,000
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
(nos) (nos)
Domestic customers (LHS) Addition (RHS)
51
Elara Securities (India) Private Limited The Sequel
IGL: growth drivers of PNG industrial
Source: Company, Elara Securities Research Source: Platts, Elara Securities Research
Industrial & commercial PNG
The drop in RLNG prices as a result of the successful renegotiation
of long-term Rasgas contract has helped in arresting PNG industrial &
commercial volume decline.
Noida administration had ordered all industrial units to shift to
natural gas by March 2016. The order is being challenged. However, we
believe focus on curbing pollution will result in higher pickup from industrial
consumers.
Spot RLNG vs fuel oil price Steady rise in commercial/industrial consumers
0
500
1,000
1,500
2,000
2,500
3,000
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
(nos)
PNG-commercial/industrial
34
36
38
40
42
44
46
Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16
(mmscm)
PNG-commercial/industrial sales
Source: Company, Elara Securities Research
PNG-commercial/industrial consumption expected to rise
3
8
13
18
23
Jan-1
3
Mar-
13
May-1
3
Jul-13
Sep-1
3
Nov-1
3
Jan-1
4
Mar-
14
May-1
4
Jul-14
Sep-1
4
Nov-1
4
Jan-1
5
Mar-
15
May-1
5
Jul-15
Sep-1
5
Nov-1
5
Jan-1
6
Mar-
16
May-1
6
(USD/mmBtu)
Spot LNG Fuel Oil
Fuel oil becomes expensive to LNG
52
Elara Securities (India) Private Limited The Sequel
IGL: economics in favor of CNG vs alternate fuels
Source: Company, Elara Securities Research
High conversion of private cars Autorickshaw numbers have already picked up
CNG volume growth can hit 10% under the right set of conditions
Even if addition of buses does
not take place in the near
term, CNG volume can still
comfortably grow at 7%
FY16 addition
Count Mileage
(km/kg) Running
(km) Consumption
(mmscmd)
as % of FY16 CNG
consumption
Bus (145) 1,500 4.1 150 0.06 1.5
Private cars 33,645 (pvt cars
+ taxis)
40,000 16.7 20 0.05 1.3
Taxis 10,000 20.0 150 0.08 2.0
Autos 17,715 20,000 25.0 150 0.13 3.3
0.31 8.1
Source: Company, Elara Securities Research Source: Company, Elara Securities Research
2.0
2.5
3.0
3.5
4.0
0
20,000
40,000
60,000
80,000
100,000
120,000
FY10 FY11 FY12 FY13 FY14 FY15 FY16
(INR/km) (nos)
Conversions (LHS) Savings (RHS)
Due to measures to curb pollution, conversion has increased to 3,000-4,000 per month in FY17YTD
1.0
1.2
1.4
1.6
1.8
2.0
0
10,000
20,000
30,000
40,000
FY10 FY11 FY12 FY13 FY14 FY15 FY16
(INR/km) (nos)
Conversions (LHS) Savings (RHS)
53
Elara Securities (India) Private Limited The Sequel
IGL: cashflow to improve
Source: Company, Elara Securities Estimate
Cashflow generation of INR 5-6bn each year
Volume-led growth in EBITDA
PAT CAGR of ~18% during FY16-18E
Expect increase in EBITDA/scm
Source: Company, Elara Securities Estimate Source: Company, Elara Securities Estimate
Source: Company, Elara Securities Estimate
5.00
5.25
5.50
5.75
6.00
3.50
3.75
4.00
4.25
4.50
4.75
FY13 FY14 FY15 FY16 FY17E FY18E
(INR) (mmscmd)
Volume EBITDA/scm (RHS)
The company has not passed on the full benefit of cost decline from Apr 1, 2016
3.50
3.75
4.00
4.25
4.50
4.75
5.00
6,000
7,000
8,000
9,000
10,000
FY13 FY14 FY15 FY16 FY17E FY18E
(mmscmd) (INR mn)
Volume (RHS) EBITDA
Volume CAGR of ~7% & EBITDA CAGR of 12.4% during FY16-18E
(2,000)
0
2,000
4,000
6,000
8,000
10,000
FY13 FY14 FY15 FY16 FY17E FY18E
(INR mn)
Capex Operational Cash Flow Change in borrowing
3,000
3,500
4,000
4,500
5,000
5,500
6,000
FY13 FY14 FY15 FY16 FY17E FY18E
(10)
(5)
0
5
10
15
20
25 (INR mn)
PAT Growth (RHS)
54
Elara Securities (India) Private Limited The Sequel
IGL: valuation
FY14 FY15 FY16 FY17E FY18E
Volume (mmscmd) 3.8 3.8 4.0 4.3 4.6
EBITDA/scm (INR) 5.7 5.7 5.3 5.7 5.8
Assumptions
Target P/E (x) 18.6
Standalone EPS (INR) 41.7
Contribution in EPS from CUGL & MNGL (INR) 4.1
Consolidated EPS (INR) 45.4
Target Price (INR) 845
Valuation (FY18E)
One-year forward P/E of IGL One-year forward P/BV of IGL
Source: Company, Elara Securities Estimate
Source: Company, Bloomberg, Elara Securities Estimate Source: Company, Bloomberg, Elara Securities Estimate
Source: Elara Securities Estimate
1x
2x
3x
4x
5x
0
200
400
600
800
1,000
1,200
Jun-0
7
Dec-
07
Jun-0
8
Dec-
08
Jun-0
9
Dec-
09
Jun-1
0
Dec-
10
Jun-1
1
Dec-
11
Jun-1
2
Dec-
12
Jun-1
3
Dec-
13
Jun-1
4
Dec-
14
Jun-1
5
Dec-
15
Jun-1
6
(INR) Stock has traded above 2x P/BV for the past few years
6x
9x
12x
15x
18x
0
200
400
600
800
Jun-0
7
Dec-
07
Jun-0
8
Dec-
08
Jun-0
9
Dec-
09
Jun-1
0
Dec-
10
Jun-1
1
Dec-
11
Jun-1
2
Dec-
12
Jun-1
3
Dec-
13
Jun-1
4
Dec-
14
Jun-1
5
Dec-
15
Jun-1
6
(INR) Adverse ruling by PNGRB led to a
sharp fall in the stock price
Robust volume growth also results in higher multiple
55
Elara Securities (India) Private Limited The Sequel
IGL: key financials
Note: pricing as on 12 August 2016; Source: Company, Elara Securities Estimate
Income Statement (INR mn) FY15 FY16 FY17E FY18E
Net operating income 36,810 36,858 40,901 43,742
EBITDA 7,930 7,717 8,923 9,753
Depreciation 1,487 1,577 1,747 1,847
EBIT 6,443 6,141 7,176 7,906
Interest cost 298 91 0 0
Other income 345 299 386 727
PBT 6,490 6,349 7,562 8,633
Less: taxation 2,113 2,187 2,495 2,849
Effective tax rate (%) 32.6 34.4 33.0 33.0
PAT 4,377 4,162 5,066 5,784
Balance Sheet (INR mn) FY15 FY16 FY17E FY18E
Equity Capital 1,400 1,400 1,400 1,400
Reserves 19,581 22,732 26,652 31,126
Total Borrowings 1,453 0 0 0
Deferred Taxes 1,272 1,647 1,647 1,647
Others 3,712 4,165 4,885 5,605
Total Liabilities 27,418 29,945 34,584 39,778
Fixed assets 22,099 23,045 23,298 23,451
Investments 2,909 2,592 2,592 2,592
Current Assets 5,727 8,024 12,429 17,777
Less: Current Liabilities 3,317 3,716 3,735 4,042
Net Working Capital 2,411 4,308 8,695 13,736
Total Assets 27,418 29,945 34,584 39,778
Cash Flow Statement (INR mn) FY15 FY16 FY17E FY18E
Operating Cash Flow 5,815 6,310 7,150 7,572
Capex (2,010) (2,523) (2,000) (2,000)
Free Cash Flow 3,805 3,787 5,150 5,572
Investing Cash Flow (3,400) (1,907) (1,614) (1,273)
Financing Cash Flow (2,958) (2,526) (983) (1,147)
Net Change in Cash (543) 1,877 4,553 5,152
Opening Cash 2,990 2,447 4,324 8,877
Closing Cash 2,447 4,324 8,877 14,029
Ratio Analysis FY15 FY16 FY17E FY18E
Income statement ratios (%)
Revenue growth (6.1) 0.1 11.0 6.9
EBITDA growth 1.4 (2.7) 15.6 9.3
Adj PAT growth 21.5 (4.9) 21.7 14.2
EBITDAM 21.5 20.9 21.8 22.3
Adj net margin 11.9 11.3 12.4 13.2
Return & liquidity ratios
Interest Coverage Ratio (x) 21.6 67.9 NA NA
Net debt/Equity (x) (0.0) (0.2) (0.3) (0.4)
ROE (%) 20.9 17.2 18.1 17.8
ROCE (%) 18.0 15.3 15.6 14.8
Per share data & valuation ratios
Adj EPS (INR) 31.3 29.7 36.2 41.3
Adj EPS growth (%) 21.5 (4.9) 21.7 14.2
BVPS (INR) 150 172 200 232
DPS (INR) 6.0 6.0 7.0 8.0
P/E (x) 21.6 22.7 18.7 16.4
EV/EBITDA (x) 11.4 11.7 10.1 9.2
P/BV (x) 4.5 3.9 3.4 2.9
Dividend Yield (%) 0.9 0.9 1.0 1.2
56
Elara Securities (India) Private Limited The Sequel
Coverage History
Date Rating Target Price Closing Price
1 06-May-2015 Buy INR 509 INR 400
2 30-Jun-2015 Buy INR 584 INR 418
3 3-Sep-2015 Buy INR 644 INR 468
4 13-May-2016 Accumulate INR 644 INR 568
5 12-Aug-2016 Buy INR 845 INR 676
1 2
3
4
5
250
350
450
550
650
750
May-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Feb-16 Apr-16 Jun-16 Aug-16
Not Covered Covered
57
MAHANAGAR GAS – NEW KID ON THE BLOCK
Elara Securities (India) Private Limited The Sequel
Mahanagar Gas
Investment summary
Large potential for CNG: In 2001, the High Court ordered phasing out of older transport vehicles unless converted to CNG. However, there is no mandatory use of CNG
for transportation. Currently, ~1,000 out of ~4,000 BEST buses are still running on gasoil. In Mumbai, adjoining areas and Raigad District, a total of 6.7mn vehicles exist out
of which, the company targets 1.8mn. The 0.47mn vehicles plying on the roads currently suggests a 26% penetration.
Large PNG consumer base: PNG-domestic has the potential of 3mn households, out of which only 0.86mn have been connected to date. PNG commercial has the
potential of 8,000-9,000, out of which only 2,800 have been connected.
Raigad offers large potential for industrial growth: MGL was awarded Raigad District for CGD development in 2015. Raigad has a large industrial base of chemicals,
pharmaceuticals, iron & steel, engineering products, plastics and food & agro products. The company plans to connect 6-7 industrial clusters in the upcoming months.
Highest EBITDA/scm: While we expect softening, EBITDA/scm of INR 5.8 in FY16 is the highest among listed entities.
Valuation
In line with global peers, we value MGL at 18.6x FY18E EPS of INR 35, with ~5-8% volume growth. With a target price of INR 652, we initiate coverage with a Buy rating.
Key risks
Downside risks include low oil prices, an increase in LNG prices resulting in poor industrial pickup.
Key Financials
CMP: INR 537 TP: INR 652 Upside: 21%
MAHGL IN Mcap: USD 0.8bn Buy
Note: pricing as on 12 August 2016; Source: Company, Elara Securities Estimate
YE March
Revenue (INR mn)
YoY (%)
EBITDA (INR mn)
EBITDA margin (%)
Adj PAT (INR mn)
YoY (%)
Fully DEPS (INR)
ROE (%)
ROCE (%)
P/E (x)
EV/EBITDA (x)
FY15 20,949 11.1 4,897 23.4 3,010 1.3 30.5 21.4 17.9 17.6 10.5
FY16 20,789 (0.8) 5,130 24.7 3,087 2.6 31.3 20.2 17.1 17.2 10.0
FY17E 22,409 7.8 5,130 22.9 3,133 1.5 31.7 18.8 15.6 16.9 10.0
FY18E 24,366 8.7 5,672 23.3 3,460 10.4 35.0 19.2 16.1 15.3 9.1
59
Elara Securities (India) Private Limited The Sequel
Operational areas
Operational areas
Source: Company, Elara Securities Research
MGL operates in Mumbai and adjoining areas. It has been awarded the
Raigad District in 2015 where operations are yet to commence
It has a network of 188 CNG stations and plans to add a total of 83
CNG stations in the next five years, mostly in adjoining areas
Marketing exclusivity in Mumbai and adjoining areas expired in 2012 and
2014, respectively. However, the company has filed a writ petition in the
court, challenging the same
Network exclusivity is valid until 2020 for Mumbai, 2030 for
adjoining areas and until 2040 for Raigad
60
Elara Securities (India) Private Limited The Sequel
Sales & sourcing breakdown
Low dependence on term LNG (%)
Source: Company, Elara Securities Research
Source: Company, Elara Securities Research
In FY16, the company sourced 89% of sales from domestic sources and
only 5.8% was sourced from term contracts
Low dependence on term contracts would help take advantage of
low-priced LNG for the industrial segment
Domestic gas allocation
88.5
Spot LNG 5.7
Term LNG 5.8
CNG is the major segment (%)
High dependence of ~75% on CNG volume
The PNG industrial segment comprises ~14% of sales. As Raigad
becomes operational, we expect industrial volume to increase
CNG 74.21
PNG Industrial 14.42
PNG-Domestic 11.37
61
Elara Securities (India) Private Limited The Sequel
Greener times ahead
Expect volume growth of ~10% in PNG domestic to continue Expect volume growth of ~5-8% over FY16-18E
Source: Company, Elara Securities Estimate
Volume CAGR of CNG stood at 7% during FY11-16. There is still a
large number of BEST buses (~1,000) remaining to be converted to CNG.
Growth of vehicles and continued conversion into CNG would continue to
drive CNG volume growth
Urbanization of the Raigad District would drive CNG volume
New CNG stations in adjoining areas would result in higher
conversion
Mumbai has 1.1mn two-wheelers. If the CNG pilot is successful, we
expect potential of 0.12mmscmd from two-wheelers alone at 20%
penetration
Large emphasis of government in increasing penetration of PNG domestic
Only 0.86mn out of a total population of 3.0mn households
connected to date, resulting in higher potential for growth
Source: Platts, Elara Securities Estimate
1.2
1.4
1.6
1.8
2.0
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
(mmscmd)
CNG
Volume CAGR of 7% during FY11-16
0.15
0.20
0.25
0.30
0.35
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
(mmscmd)
Domestic
Volume CAGR of 9% during FY11-16
62
Elara Securities (India) Private Limited The Sequel
Commercial & industrial segments
Poor volume growth in the industrial segment Commercial volume CAGR of 5% during FY16-18E
Source: Company, Elara Securities Estimate
Due to high LNG price and poor industrial growth, we have not seen
growth in the industrial segment
Raigad District offers good industrial potential of ~0.3mmscmd.
The upcoming airport and related infrastructure would add to industrial
growth in the long term
Source: Company, Elara Securities Estimate
0.10
0.12
0.14
0.16
0.18
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
(mmscmd)
Commercial
Volume CAGR of 5% during FY11-16
MGL has connected 2,800 commercial customers out of total
potential of 9,000-10,000
As penetration improves, we expect volume growth
0.14
0.16
0.18
0.20
0.22
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
(mmscmd)
Industrial
Volume CAGR of 6% during FY11-16
63
Elara Securities (India) Private Limited The Sequel
MGL: financials to show improvement
Strong free cashflow generation EBITDA CAGR of 5.2% over FY16-18E
Source: Company, Elara Securities Estimate
Source: Company, Elara Securities Estimate
Source: Company, Elara Securities Estimate
PAT CAGR of 5.9% during FY16-18E
Although we have taken moderate volume growth resulting in moderate
EBITDA & PAT growth, it may be noted as Raigad District becomes
operational and more CNG stations are opened, we expect a sharp
increase in volume pickup. If regulatory push comes in, then volume
growth may be even higher at 8-10%
2,000
2,300
2,600
2,900
3,200
3,500
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
(INR mn)
5-8% volume growth over FY16-18E to result in 5.9% PAT CAGR
3,000
3,500
4,000
4,500
5,000
5,500
6,000
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
(INR mn)
5-8% volume growth over FY16-18E to result in 5% EBITDA CAGR
1,500
2,000
2,500
3,000
3,500
FY12 FY13 FY14 FY15 FY16 FY17E FY18E
(INR mn)
64
Elara Securities (India) Private Limited The Sequel
MGL: valuation
Source: Company, Elara Securities Estimate Source: Elara Securities Estimate
Target P/E (x) 18.6
EPS (INR) 35.0
Target price (INR) 652
Key assumptions Valuation (FY18E)
FY14 FY15 FY16 FY17E FY18E
Volume (mmscmd) 2.3 2.4 2.4 2.6 2.8
EBITDA/scm (INR) 5.9 5.6 5.8 5.5 5.6
65
Elara Securities (India) Private Limited The Sequel
MGL: key financials
Note: pricing as on 12 August 2016; Source: Company, Elara Securities Estimate
Income Statement (INR mn) FY15 FY16 FY17E FY18E
Net operating income (LHS) 20,949 20,789 22,409 24,366
EBITDA 4,897 5,130 5,130 5,672
Depreciation 799 841 948 1,023
EBIT 4,098 4,289 4,182 4,649
Other income 407 427 504 524
Interest cost 12 29 10 8
PBT 4,493 4,686 4,676 5,164
Less: taxation 1,483 1,600 1,543 1,704
Effective tax rate (%) 33.0 34.1 33.0 33.0
PAT (LHS) 3,010 3,087 3,133 3,460
Balance Stee (INR mn) FY15 FY16 FY17E FY18E
Equity Capital 893 893 988 988
Reserves 13,181 14,386 15,640 17,024
Total Borrowings 156 44 116 96
Deferred Taxes 1,027 1,181 1,181 1,181
Others 3,227 3,898 3,903 4,378
Total Liabilities 18,485 20,402 21,828 23,667
Fixed Assets 14,436 15,885 16,819 17,295
Investments 3,715 3,882 3,882 3,882
Current Assets 3,505 3,796 4,252 5,907
Less: Current Liabilities 3,171 3,161 3,125 3,418
Net Working Capital 334 636 1,127 2,489
Total assets 18,485 20,402 21,828 23,667
Cash Flow Statement (INR mn) FY15 FY16 FY17E FY18E
Operating Cash Flow 4,550 4,722 3,812 5,128
Capex (1,866) (2,289) (1,882) (1,500)
Free Cash Flow 2,684 2,433 1,930 3,628
Investing Cash Flow (2,160) (2,456) (1,882) (1,500)
Financing Cash Flow (1,829) (1,994) (1,713) (2,096)
Net Change in Cash 561 272 217 1,532
Opening Cash 888 1,449 1,721 1,937
Closing Cash 1,449 1,721 1,937 3,470
Ratio Analysis FY15 FY16 FY17E FY18E
Income Statement Ratios (%)
Revenue growth 11.1 (0.8) 7.8 8.7
EBITDA growth 0.3 4.7 0.0 10.6
Adj PAT growth 1.3 2.6 1.5 10.4
EBITDAM 23.4 24.7 22.9 23.3
Adj net margin 14.4 14.8 14.0 14.2
Return & Liquidity Ratios
Int/PBIT 340.1 145.6 415.3 548.9
Net debt/Equity (x) (0.4) (0.4) (0.3) (0.4)
ROE (%) 21.4 20.2 18.8 19.2
ROCE (%) 17.9 17.1 15.6 16.1
Per Share Data & Valuation Ratios
Diluted Adj EPS (INR) 30.5 31.3 31.7 35.0
Adj EPS growth (%) 1.3 2.6 1.5 10.4
Book Value (INR) 142 155 168 182
DPS (INR) 15.8 15.8 15.9 17.5
P/E (x) 17.6 17.2 16.9 15.3
EV/EBITDA (x) 10.5 10.0 10.0 9.1
Price/Book (x) 3.8 3.5 3.2 2.9
Dividend yield (%) 2.9 2.9 3.0 3.3
66
Elara Securities (India) Private Limited The Sequel
Coverage History
Date Rating Target Price Closing Price
1 12-Aug-2016 Buy INR 652 INR 537
1
400
450
500
550
600
30-J
un-1
6
3-J
ul-16
6-J
ul-16
9-J
ul-16
12-J
ul-16
15-J
ul-16
18-J
ul-16
21-J
ul-16
24-J
ul-16
27-J
ul-16
30-J
ul-16
2-A
ug-1
6
5-A
ug-1
6
8-A
ug-1
6
11-A
ug-1
6
Not Covered Covered
67
PETRONET LNG – SET TO TAKE-OFF
Elara Securities (India) Private Limited The Sequel
Petronet LNG
Investment summary
Successful renegotiation of long-term Rasgas contract: Higher price of long-term contracts had resulted in quarterly volume declining from average of 94tbtu to
57tbtu in CY15, with a sharply low 38tbtu in Q3FY16. However, a successful renegotiation resulted in alignment with spot prices resulting in 109tbtu in Q4FY16. We expect
continued a higher pickup of long-term volume.
Capacity-led volume growth: Petronet LNG is expanding capacity at Dahej from 10mn tonne pa to 15mn tonne pa at a capex of INR 24bn. Expansion is expected to be
commissioned by December 2016E. Post expansion, 14.75mn tonnes pa out of 15.00mn tonnes pa is already booked with offtakers. Dahej terminal is expected to expand
to 17.5mn tonne pa by FY20E.
Kochi terminal utilization: Despite a favourable SC order on laying of pipeline, it has not happened due to objection from land owners. We expect current utilization of
8% to double in FY18E due to expansion of BPCL’s Kochi refinery.
Improved financials: EBITDA to jump by ~70% during FY16-18E.
Valuation
We recommend Buy with a TP of INR 386 on a DCF method (at a WACC at 12% and a terminal growth rate at 3%).
Key risks
Downside risks include delay in project execution, poor capital allocation and lower utilization of the terminals.
Key Financials
Note: pricing as on 12 August 2016; Source: Company, Elara Securities Estimate
CMP: INR 314 TP: INR 386 Upside: 23%
PLNG IN Mcap: USD 3.5bn Buy
YE March
Revenue (INR mn)
YoY (%)
EBITDA (INR mn)
EBITDA margin (%)
Adj PAT (INR mn)
YoY (%)
Fully DEPS (INR)
ROE (%)
ROCE (%)
P/E (x)
EV/EBITDA (x)
FY15 395,010 4.6 14,390 3.6 8,825 24.0 11.8 14.6 12.6 26.7 16.3
FY16 271,334 (31.3) 15,903 5.9 9,140 3.6 12.2 13.4 11.7 25.8 14.7
FY17E 247,817 (8.7) 18,157 7.3 12,063 32.0 16.1 15.2 12.2 19.5 12.9
FY18E 469,293 89.4 27,553 5.9 19,351 60.4 25.8 16.6 17.9 12.2 8.5
69
Elara Securities (India) Private Limited The Sequel
PLNG: expansion at the right time
Volume is likely to surge 80% during FY16-20E
Source: Company, Elara Securities Estimate Source: Company, Elara Securities Estimate
Dahej to expand to 17.5mn tonne pa by FY20E
Dahej to see low-cost expansion to 15mn tonne pa at a cost of
INR 23bn by December 2016E and to 17.5mn tonne pa at a cost
of INR 12bn by FY20E
For expansion to 15mn tonne pa, 14.75mn tonne pa is already booked
with offtakers
There are further plans to set up two international LNG terminals
Kochi is underutilized at 6-8% on non-completion of an evacuation
pipeline
Only two new LNG terminals: Apart from Dahej expansion, only two
LNG terminals coming up are GSPC’s 5mn-tonne-pa Mundra LNG terminal
(H2CY17) and Indian Oil’s 5mn-tonne-pa Ennore LNG terminal (2018)
Demand to double in next 3-4 years: Structurally low LNG prices
would help boost demand from fertilizer companies and other industries;
development of gas grid would further open up new markets for LNG
0
5
10
15
20
25
FY15 FY16 FY17E FY18E FY19E FY20E
(mn tonne pa)
Kochi Dahej
Expansion to 15mn tonne pa by Q3FY17, we assume Q1FY18 on
a conservative note
Further expansion to 17.5mn tonne pa
5
10
15
20
25
FY15 FY16 FY17E FY18E FY19E FY20E
(mn tonne pa)
Total vol handled
Capacity expansion ahead of peers, helping in higher offtake
70
Elara Securities (India) Private Limited The Sequel
PLNG: low LNG prices help
Source: Capitaline, Elara Securities Research
High-priced Rasgas volume finds few takers
Source: Company, Elara Securities Research
Return of high utilization
Source: Company, Elara Securities Research
Source: Company, Elara Securities Research
30
60
90
120
1Q
FY12
2Q
FY12
3Q
FY12
4Q
FY12
1Q
FY13
2Q
FY13
3Q
FY13
4Q
FY13
1Q
FY14
2Q
FY14
3Q
FY14
4Q
FY14
1Q
FY15
2Q
FY15
3Q
FY15
4Q
FY15
1Q
FY16
2Q
FY16
3Q
FY16
4Q
FY16
(Tbtu)
Sales of long term Rasgas volumes
Inability of offtakers to place high-priced Rasgas volume
Successful renegotiation results in lowering of LNG prices and high offtake
60%
80%
100%
120%
140%
1Q
FY12
2Q
FY12
3Q
FY12
4Q
FY12
1Q
FY13
2Q
FY13
3Q
FY13
4Q
FY13
1Q
FY14
2Q
FY14
3Q
FY14
4Q
FY14
1Q
FY15
2Q
FY15
3Q
FY15
4Q
FY15
1Q
FY16
2Q
FY16
3Q
FY16
4Q
FY16
Dahej utilization
High cost of long-term Rasgas contract resulted in decline in utilization
Successful renegotiation of 7.5mn tonne pa, long-term contract
with Rasgas resulted in better alignment with spot prices. This
resulted in pickup of long-term volume from Q4FY16.
After power, fertilizer next big consumer: Government-initiated
auction of power plants and pooling of gas for fertilizer plants have
resulted in rise in gas consumption. Additional ~8mmscmd of demand
has come from the power sector. The fertilizer sector has
increased consumption from 41.6mmscmd in FY15 to
44.1mmscmd in FY16
Post the expansion of Dahej to 15mn tonne pa, 14.75mn tonne pa is
booked with offtakers. This would provide higher visibility of earnings
for the company.
Gujarat Gas wins five new geographical areas recently. These have
higher potential of giving a boost to industrial demand.
71
Elara Securities (India) Private Limited The Sequel
PLNG: Kochi rise in uptake from 2016-end without pipeline
Kochi refinery expansion would add to volume Kochi Phase-II pipeline to commence construction soon
Source: Company, Elara Securities Research Source: Company, Elara Securities Research
Kochi refinery is currently taking ~0.6mmscmd from Kochi
Once expansion of Kochi refinery is complete by May 2016,
it would offtake ~3.0mmscmd from the Kochi terminal
Even without completion of Phase-II pipeline, utilization would
rise to ~20% in FY18E
While recent news reports (Source: The Hindu) suggest the Kochi-
Mangalore leg of the pipeline would be completed soon, we
assume a 50% utilization of Kochi in FY19E and 90%
utilization from FY20E; completion of Phase-II pipeline by
GAIL would result in higher utilization
0%
2%
4%
6%
8%
10%
1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16
Kochi utilization
Low utilization on non-completion of pipelines; increase to ~20% with expansion of Kochi refinery
by December 2016
72
Elara Securities (India) Private Limited The Sequel
PLNG: EBITDA to jump by ~60% during FY15-18E
EBITDA to jump by ~70% during FY16-18E EPS to almost double during FY16-18E
Source: Company, Elara Securities Estimate Source: Company, Elara Securities Estimate
Improvement in return ratios
Source: Company, Elara Securities Estimate
The Dahej terminal is running at 114% utilization. We assume 105%
utilization expansion to 15.0mn tonne pa and 100% post-expansion
to 17.5mn tonne pa. Higher demand may result in higher utilization and
earnings
The company may do more spot-term volume and command higher
marketing margin as demand of LNG picks up
Additional triggers
400
500
600
700
800
900
0
5,000
10,000
15,000
20,000
25,000
30,000
FY13 FY14 FY15 FY16 FY17E FY18E
(mmBtu) (INR mn)
Total vol EBITDA
Dahej expansion from 10mmtpa to 15mmtpa
8
13
18
23
28
FY13 FY14 FY15 FY16 FY17E FY18E
ROE (%) ROCE (%)
High marketing margins on spot/short-term cargo
(60)
(40)
(20)
0
20
40
60
80
8
13
18
23
28
FY13 FY14 FY15 FY16 FY17E FY18E
Diluted EPS (INR) Adj EPS Growth (%)
High marketing margin on spot/short-term cargo
73
Elara Securities (India) Private Limited The Sequel
PLNG: assumptions & valuation
Assumptions for volume growth
Source: Company, Elara Securities Estimate
Valuation: DCF-based target price of INR 386
(tbtu) FY14 FY15 FY16 FY17E FY18E FY19E FY20E
Total Regas sales volume 440 422 367 440 832 949 1,053
-Dahej
Long-term sales 374 344 277 390 767 767 767
Short-term/spot 62 72 75 46 13 52 52
-Kochi 3 5 15 4 52 130 234
Regas 54 105 213 117 0 0 0
(INR mn) FY17E FY18E FY19E FY20E FY21E FY22E
PAT including div/FBT 12,063 19,351 25,163 28,222 34,358 36,945
Depreciation 3,527 3,979 5,760 5,885 6,010 6,135
Change in net working capital (2,946) 522 699 269 590 553
Capex (10,000) (5,000) (5,000) (5,000) (5,000) (5,000)
FCFF (INR mn) 2,643 18,851 26,622 29,376 35,957 38,633
NPV (INR mn) 106,380
Terminal growth rate (%) 0.0%
TV 182,679
Enterprise value 289,059
Net debt (475)
Equity value 289,534
Target price (INR) 386
Source: Elara Securities Estimate
74
Elara Securities (India) Private Limited The Sequel
PLNG: key financials
Note: pricing as on 12 August 2016; Source: Company, Elara Securities Estimate
Income Statement (INR mn) FY15 FY16 FY17E FY18E
Net operating income 395,010 271,334 247,817 469,293
EBITDA 14,390 15,903 18,157 27,553
Depreciation 3,154 3,216 3,527 3,979
EBIT 11,236 12,687 14,630 23,574
Interest Cost 2,935 2,388 1,596 1,435
Other Income 1,548 1,704 2,838 3,322
PBT 9,849 12,004 15,872 25,462
Less: Taxation 1,024 2,864 3,809 6,111
Effective Tax Rate (%) 10.4 23.9 24.0 24.0
PAT 8,825 9,140 12,063 19,351
Balance Sheet (INR mn) FY15 FY16 FY17E FY18E
Equity Capital 7,500 7,500 7,500 7,500
Reserves 49,386 56,264 64,940 78,857
Borrowings 23,738 20,610 25,000 16,000
Deferred taxes 7,270 8,710 8,710 8,710
Long term liability 9,000 14,000 14,000 14,000
Total Liabilities 96,894 107,084 120,150 125,067
Fixed Assets 76,895 83,610 90,083 91,105
Investments 900 900 900 900
Inventories 8,826 2,461 6,292 12,102
Debtors 13,428 9,885 10,863 20,572
Cash 3,641 21,829 25,475 29,893
Loans & Advances 7,493 5,762 5,231 5,436
Other Current Assets 4 33 4 4
Net Current Assets 19,100 22,574 29,167 33,063
Total Assets 96,894 107,084 120,150 125,067
Cash Flow Statement (INR mn) FY15 FY16 FY17E FY18E
Operating cash flow 6,440 33,510 12,643 23,851
Capex (8,599) (9,931) (10,000) (5,000)
Free cash flow to firm (2,159) 23,578 2,643 18,851
Investing cash flow (8,100) (9,931) (10,000) (5,000)
Financing cash flow (7,027) (5,390) 1,003 (14,433)
Net change in cash (8,686) 18,188 3,646 4,418
Opening cash 12,327 3,641 21,829 25,475
Closing cash 3,641 21,829 25,475 29,893
Ratio Analysis FY15 FY16 FY17E FY18E
Income Statement Ratios (%)
Revenue Growth 4.6 (31.3) (8.7) 89.4
EBITDA Growth (4.0) 10.5 14.2 51.8
PAT Growth 24.0 3.6 32.0 60.4
EBITDAM 3.6 5.9 7.3 5.9
Net Margin 2.2 3.4 4.9 4.1
Return & Liquity Ratios
Int/PBIT 0.3 0.2 0.1 0.1
Net Debt/Equity 0.4 (0.0) (0.0) (0.2)
ROE (%) 14.6 13.4 15.2 16.6
ROCE (%) 12.6 11.7 12.2 17.9
Per Share Data & Valuation Ratios
Diluted EPS (INR) 11.8 12.2 16.1 25.8
Adj EPS Growth (%) 24.0 3.6 32.0 60.4
Book Value (INR/share) 75.8 85.0 96.6 115.1
DPS (INR) 2.0 2.5 3.9 6.2
P/E (x) 26.7 25.8 19.5 12.2
EV/EBITDA (x) 16.3 14.7 12.9 8.5
Price/Book (x) 4.1 3.7 3.3 2.7
Dividend Yield (%) 0.6 0.8 1.2 2.0
75
Elara Securities (India) Private Limited The Sequel
Coverage History
Date Rating Target Price Closing Price
1 31-Jan-2014 Buy INR 137 INR 110
2 31-Mar-2014 Reduce INR 137 INR 137
3 30-Apr-2014 Sell INR 131 INR 145
4 4-Aug-2014 Sell INR 139 INR 180
5 07-Nov-2014 Sell INR 136 INR 201
6 05-Feb-2015 Sell INR 155 INR 184
7 24-Mar-2015 Buy INR 241 INR 176
Date Rating Target Price Closing Price
8 24-Apr-2015 Buy INR 229 INR 167
9 30-Jul-2015 Buy INR 242 INR 194
10 19-Oct-2015 Buy INR 245 INR 191
11 1-Jan-2016 Buy INR 315 INR 259
12 10-Feb-2016 Buy INR 312 INR 251
13 16-May-2016 Accumulate INR 315 INR 277
14 12-Aug-2016 Buy INR 386 INR 314
1
2 3
4 5
6 7
8
9 10
11 12
13
14
100
150
200
250
300
350
Jan-1
2
Feb-1
2
Apr-
12
Jun-1
2
Aug-1
2
Oct
-12
Dec-
12
Feb-1
3
Apr-
13
Jun-1
3
Aug-1
3
Oct
-13
Nov-1
3
Jan-1
4
Mar-
14
May-1
4
Jul-14
Sep-1
4
Nov-1
4
Jan-1
5
Mar-
15
May-1
5
Jul-15
Aug-1
5
Oct
-15
Dec-
15
Feb-1
6
Apr-
16
Jun-1
6
Aug-1
6
Not Covered Covered
76
APPENDIX
Elara Securities (India) Private Limited The Sequel
Delhi-Jaipur green corridor (2 of 8)
22km
128km
128km Companies
Traffic (ADT)
Estimated vol (mmscmd)
Delhi: IGL Jaipur: Round 7
61,871 0.5
Source: Elara Securities Research
78
Elara Securities (India) Private Limited The Sequel
Delhi-Chandigarh green corridor (3 of 8)
Companies Traffic (ADT)
Estimated vol (mmscmd)
Delhi: IGL Chandigarh: IOCL-Adani
46,533 0.4
Source: Elara Securities Research
79
Elara Securities (India) Private Limited The Sequel
Delhi-Haridwar green corridor (4 of 8)
83km
140km
Companies Traffic (ADT)
Estimated vol (mmscmd)
Delhi: IGL Haridwar: GAIL/BPCL
16,540 0.1
Source: Elara Securities Research
80
Elara Securities (India) Private Limited The Sequel
Karanpur-Moradabad-Kashipur-Rudrapur green corridor (5 of 8)
Companies Traffic (ADT) Estimated vol (mmscmd)
GAIL 20,708 0.1
Source: Company, Elara Securities Research
81
Elara Securities (India) Private Limited The Sequel
Allahabad-Kanpur-Varanasi green corridor (6 of 8)
203km
120km
Companies Traffic (ADT)
Estimated vol (mmscmd)
Allahabad: IOCL-Adani, Kanpur: CUGL Varanasi: Not allocated
15,133 0.1
Source: Elara Securities Research
82
Elara Securities (India) Private Limited The Sequel
Vishakapatnam-Vijayawada green corridor (7 of 8)
150km 150km
Kovvur
Companies Traffic (ADT)
Estimated vol (mmscmd)
Vizag: not authorized so far Kovvur: BGL Vijaywada: BGL
28,496 0.3
Source: Elara Securities Research
83
Elara Securities (India) Private Limited The Sequel
Bangalore-Mumbai-Pune green corridor (8 of 8)
148km 342km
90km
171km 195km
71km
Companies Traffic (ADT)
Estimated vol (mmscmd)
Mumbai: MGL Pune: MNGL Bengaluru: GAIL Gas
27,912 0.9
Source: Elara Securities Research
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Elara Securities (India) Private Limited The Sequel
Notes
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Elara Securities (India) Private Limited The Sequel
The Note is based on our estimates and is being provided to you (herein referred to as the “Recipient”) only for information purposes. The sole purpose of this Note is to provide preliminary information on the business activities of the company and the projected financial statements in order to assist the recipient in understanding / evaluating the Proposal. Nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved) and should consult its own advisors to determine the merits and risks of such an investment. Nevertheless, Elara Securities (India) Private Limited or any of its affiliates is committed to provide independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Elara Securities (India) Private Limited or any of its affiliates have not independently verified all the information given in this Note and expressly disclaim all liability for any errors and/or omissions, representations or warranties, expressed or implied as contained in this Note. The user assumes the entire risk of any use made of this information. Elara Securities (India) Private Limited or any of its affiliates, their directors and the employees may from time to time, effect or have effected an own account transaction in or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for or solicit investment banking or other business from any company referred to in this Note. Each of these entities functions as a separate, distinct and independent of each other. This Note is strictly confidential and is being furnished to you solely for your information. This Note should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This Note is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Elara Securities (India) Private Limited or any of its affiliates to any registration or licensing requirements within such jurisdiction. The distribution of this document in certain jurisdictions may be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions. Upon request, the Recipient will promptly return all material received from the company and/or the Advisors without retaining any copies thereof. The Information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This Information is subject to change without any prior notice. Elara Securities (India) Private Limited or any of its affiliates reserves the right to make modifications and alterations to this statement as may be required from time to time. However, Elara Securities (India) Private Limited is under no obligation to update or keep the information current. Neither Elara Securities (India) Private Limited nor any of its affiliates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. This Note should not be deemed an indication of the state of affairs of the company nor shall it constitute an indication that there has been no change in the business or state of affairs of the company since the date of publication of this Note. The disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. Elara Securities (India) Private Limited generally prohibits its analysts, persons reporting to analysts and their family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. Any clarifications / queries on the proposal as well as any future communication regarding the proposal should be addressed to Elara Securities (India) Private Limited. Elara Securities (India) Private Limited was incorporated in July 2007 as a subsidiary of Elara Capital (India) Private Limited. Elara Securities (India) Private Limited is a SEBI registered Stock Broker in the Capital Market and Futures & Options Segments of National Stock Exchange of India Limited (NSE) and in the Capital Market Segment of BSE Limited (BSE). Elara Securities (India) Private Limited’s business, amongst other things, is to undertake all associated activities relating to its broking business. The activities of Elara Securities (India) Private Limited were neither suspended nor has it defaulted with any stock exchange authority with whom it is registered in last five years. However, during the routine course of inspection and based on observations, the exchanges have issued advise letters or levied minor penalties on Elara Securities (India) Private Limited for minor operational deviations in certain cases. Elara Securities (India) Private Limited has not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has the certificate of registration been cancelled by SEBI at any point of time. Elara Securities (India) Private Limited offers research services primarily to institutional investors and their employees, directors, fund managers, advisors who are registered or proposed to be registered. Details of Associates of Elara Securities (India) Private Limited are available on group company website www.elaracapital.com Elara Securities (India) Private Limited is maintaining arms-length relationship with its associate entities. Research Analyst or his/her relative(s) may have financial interest in the subject company. Elara Securities (India) Private Limited does not have any financial interest in the subject company, whereas its associate entities may have financial interest. Research Analyst or his/her relative does not have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report. Elara Securities (India) Private Limited does not have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report. Associate entities of Elara Securities (India) Private Limited may have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report. Research Analyst or his/her relative or Elara Securities (India) Private Limited or its associate entities does not have any other material conflict of interest at the time of publication of the Research Report.
Disclosures & Confidentiality for non U.S. Investors
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Elara Securities (India) Private Limited The Sequel
India
Elara Securities (India) Pvt. Ltd.
Indiabulls Finance Centre, Tower 3, 21st Floor,
Senapati Bapat Marg, Elphinstone Road (West)
Mumbai – 400 013, India
Tel : +91 22 6164 8500
Europe
Elara Capital Plc.
29 Marylebone Road,
London NW1 5JX,
United Kingdom
Tel : +4420 7486 9733
USA
Elara Securities Inc.
950 Third Avenue, Suite 1903, New York, NY 10022, USA
Tel: +1 212 430 5870
Fax: +1 212 208 2501
Asia / Pacific
Elara Capital (Singapore) Pte.Ltd.
30 Raffles Place
#20-03, Chevron House
Singapore 048622
Tel : +65 6536 6267
Disclaimer for non U.S. Investors The information contained in this note is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
This material is based upon information that we consider to be reliable, but Elara Capital Inc. does not warrant its completeness, accuracy or adequacy and it should not be relied upon as such. This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. Prices, values or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested. Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate. Where an investment or security is denominated in a different currency to the investor’s currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor. The information contained in this report does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation of particular securities, financial instruments or strategies to you. Before acting on any recommendation in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Certain statements in this report, including any financial projections, may constitute “forward-looking statements.” These “forward-looking statements” are not guarantees of future performance and are based on numerous current assumptions that are subject to significant uncertainties and contingencies. Actual future performance could differ materially from these “forward-looking statements” and financial information.
Disclaimer for U.S. Investors
Research Analyst or his/her relative(s) has not served as an officer, director or employee of the subject company. Research analyst or Elara Securities (India) Private Limited have not received any compensation from the subject company in the past twelve months. Associate entities of Elara Securities (India) Private Limited may have received compensation from the subject company in the past twelve months. Research analyst or Elara Securities (India) Private Limited or its associate entities have not managed or co-managed public offering of securities for the subject company in the past twelve months. Research analyst or Elara Securities (India) Private Limited or its associates have not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months. Research analyst or Elara Securities (India) Private Limited or its associate entities may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company or third party in connection with the Research Report in the past twelve months.
Disclosures for U.S. Investors The research analyst did not receive compensation from Gujarat Gas Limited, Indraprastha Gas Limited, Mahanagar Gas Limited and Petronet LNG Limited. Elara Capital Inc.’s affiliate did not manage an offering for Gujarat Gas Limited, Indraprastha Gas Limited, Mahanagar Gas Limited and Petronet LNG Limited. Elara Capital Inc.’s affiliate did not receive compensation from Gujarat Gas Limited, Indraprastha Gas Limited, Mahanagar Gas Limited and Petronet LNG Limited in the last 12 months. Elara Capital Inc.’s affiliate does not expect to receive compensation from Gujarat Gas Limited, Indraprastha Gas Limited, Mahanagar Gas Limited and Petronet LNG Limited in the next 3 months.
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Elara Securities (India) Private Limited The Sequel
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Elara Securities (India) Private Limited
CIN: U74992MH2007PTC172297
SEBI RA Regn. No.: INH000000933
Member (BSE, NSE)
Regn Nos: CAPITAL MARKET SEBI REGN. NO.: BSE: INB
011289833, NSE: INB231289837 DERIVATIVES SEBI REGN.
NO.: NSE: INF 231289837
Website: www.elaracapital.com Investor Grievance Email ID:
Team Details
Harendra Kumar Managing Director [email protected] +91 22 6164 8571
Sales Deepak Sawhney India [email protected] +91 22 6164 8549
Nishit Master India [email protected] +91 22 6164 8521 Prashin Lalvani India [email protected] +91 22 6164 8544
Sushil Bhojwani India [email protected] +91 22 6164 8512
Sudhanshu Rajpal India [email protected] +91 22 6164 8508 Parin Vora North America [email protected] +91 22 6164 8558
Sales Trading & Dealing
Manan Joshi India [email protected] +91 22 6164 8555 Manoj Murarka India [email protected] +91 22 6164 8551
Sanjay Joshi India [email protected] +91 22 6164 8554
Vishal Thakkar India [email protected] +91 22 6164 8552
Research
Abhishek Karande Analyst Technical & Alternate Strategy [email protected] +91 22 6164 8562
Adhidev Chattopadhyay Analyst Infrastructure, Real Estate [email protected] +91 22 6164 8526
Ashish Kejriwal Analyst Metals & Mining, Railways [email protected] +91 22 6164 8505
Ashish Kumar Economist [email protected] +91 22 6164 8536
Deepak Agrawala Analyst Power, Capital Goods [email protected] +91 22 6164 8523
Jay Kale, CFA Analyst Auto & Auto Ancillaries [email protected] +91 22 6164 8507
Rakesh Kumar Analyst Banking & Financials [email protected] +91 22 6164 8559
Ravi Menon Analyst IT Services [email protected] +91 22 6164 8502
Ravi Sodah Analyst Cement [email protected] +91 22 6164 8517
Sumant Kumar Analyst Agri, Travel & Hospitality, Paper [email protected] +91 22 6164 8503
Swarnendu Bhushan Analyst Oil and gas [email protected] +91 22 6164 8504
Harshit Kapadia Sr. Associate Power, Capital Goods [email protected] +91 22 6164 8542
Manuj Oberoi Sr. Associate Banking & Financials [email protected] +91 22 6164 8535
Anuja Barve Associate Agri, Travel & Hospitality, Paper [email protected] +91 22 6164 8541
Harsh Jhanwar Associate Cement [email protected] +91 22 6164 8546
Kamlesh Shirbhate Associate Infrastructure, Real Estate [email protected] +91 22 6164 8525
Milan Desai Associate Media [email protected] +91 22 6164 8516
Vijay Gyanchandani Associate Auto & Auto Ancillaries [email protected] +91 22 6164 8511
Vaishnavi Mandhaniya Executive Research Telecom [email protected] +91 22 6164 8519
Priyanka Sheth Editor [email protected] +91 22 6164 8568
Gurunath Parab Production [email protected] +91 22 6164 8515
Jinesh Bhansali Production [email protected] +91 22 6164 8537
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