Institutional Equities Gujarat State Petronet...Institutional Equities 2 Gujarat State Petronet...

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Reuters: GSPT.NS; Bloomberg: GUJS IN

Gujarat State Petronet

Gas piper leveraged to potential surge in future growth We initiate coverage on Gujarat State Petronet Ltd (GSPL) with a Buy and SOTP-based target price (TP) of Rs303 (39.8% upside from CMP, including the value of its stake in Gujarat Gas Ltd. Key catalysts are: (i) GSPL’s expansion of its statewide gas grid in India’s gas hub Gujarat and foray into the northern markets through its new Mehsana – Bhatinda- Srinagar pipeline - MBPL (ii) huge leverage to likely surge in new gas supplies from KG basin as well as imports (iii) healthy free cash flows and (iv) compelling valuation. GSPL, India’s second largest gas transmission company, is now setting its eyes on pan-India growth. We expect 6% CAGR in transmission business volume based on ongoing network expansion in Gujarat and proposed last mile links with the existing LNG import terminals at Dahej, Hazira and the upcoming ones at Mundra and Chhaara. GSPL has also promoted two SPVs to execute two new gas pipelines awarded by PNGRB: (i) MBPL extending up north (cost Rs55-60bn, 30 mmscmd capacity) and (ii) a smaller one in Andhra Pradesh connecting East Godavari with Ramagundam. Further, GSPL’s 54.17% controlling stake in CGD leader Gujarat Gas (GGAS) offers a less risky exposure to the latter’s healthy growth prospects in PNG and CNG within Gujarat and the new license areas (GAs) won in the recent bidding rounds, including 6 in the 10th. The above prospects offset concerns regarding GSPL’s growth over FY20-22E due to a likely dip in refining segment volume (35% share), once Reliance stabilizes its petcoke gasification project.

Buy based on long term value and FCF: Our Buy is more a value theme than an earnings growth story - GSPL trades at 10.4x PE on Sept 21E vs. volume and EPS growth of around 8% each over FY20E-FY23E, This is reasonable seen against the 41% surge likely in FY20E based on YTD trend. We see potential earnings CAGR of 10%-14% over FY20-25, if we assume a step change in volume of 25%-50% even after 5 years.

CGD expansion and other segments to support long term growth: We expect earnings to gradually revive over three to five years after remaining subdued over FY20-22E based on volume growth, driven by (i) new CGD networks and ongoing CNG/PNG household connections by GGAS (ii) industrial consumers, especially in Morbi Industrial belt that has seen a huge spurt in gas demand following a ban on coal and fuel oil by environmental watchdog NGT. This ban is likely to be extended to other areas, which will boost GGAS’s growth and thereby GSPL’s transmission volume (iii) gas based fertilizer, power and other industries, including refineries (IOC - Koyali and Panipat, HPCL - Bhatinda), which will require gas for captive hydrogen for Bharat VI auto fuels.

Healthy cash flows: We forecast volume of 41.3-42.7 mmscmd over FY21-22E vs 37.9 mmscmd in FY20, which underpins our muted standalone EPS growth of 3.2%/5.6% over FY21-22E. This sober earnings outlook follows the 38% surge in FY20E, partly driven by one-time deferred tax write back in 1HFY20, as the company has opted for the lower tax rate. The 52% share of earnings from the two SPVs likely to be booked as share of profits from JVs is likely to support GSPL’s consolidated earnings.

Attractive valuation: The stock trades at 10.4x PE on FY21 Sept. EPS, 8.2x EV/E on FY21 Sept. EBITDA and FCF yield of 6% on Sept FY21E, which looks reasonable, given that the stock is up 15.5% in the last one year. We see company’s net debt declining from Rs24bn to Rs167mn by FY22E after aggregate capex and investments of Rs6bn. We estimate FCF to increase from Rs10.8bn on average in FY19/FY20E to Rs9.3/13.2bn over FY21E-22E and should sustain over the longer term as well. Our Buy call is based on (i) sustained long term growth outlook in transmission volume, supported by India’s booming natural gas market (ii) huge leverage to a step surge in future volume and (iii) compelling valuation that offset concerns over tepid growth over FY21-22E as well as regulatory/policy issues and execution risk.

BUY

Sector: Oil & Gas

CMP: Rs217

Target Price: Rs303

Upside: 39.8%

Amit Agarwal Research Analyst [email protected] +91-22-6273 8145

Key Data

Current Shares O/S (mn) 564.1

Mkt Cap (Rsbn/US$bn) 122.1/1.7

52 Wk H / L (Rs) 230/149

Daily Vol. (3M NSE Avg.) 608,214

Share holding (%) 4QFY19 1QFY20 2QFY20

Promoter 37.6 37.6 37.6

Public 62.4 62.4 62.4

Others - - -

One Year Indexed Stock Performance

Price Performance (%)

1-M 6-M 1-Yr

GUJS 1.4 9.6 15.2

Nifty Index 1.1 (0.6) 10.4

Source: Bloomberg

Y/E March (Rsmn) FY18 FY19 FY20E FY21E FY22E

Revenues 13,317 18,772 22,322 22,161 22,917

EBITDA 11,478 15,426 16,067 17,687 18,168

Net Profit Adj 6,684 7,947 11,118 11,385 12,083

EPS (Rs) 11.86 14.09 19.71 20.19 21.42

EPS gr (%) 34.5 18.9 39.9 2.4 6.1

EBITDA Margin (%) 86.2 82.2 72.0 79.8 79.3

P/E (x) 18.3 15.4 11.0 10.7 10.1

EV/EBITDA 12.8 9.5 9.1 8.3 8.1

Dividend Yield (%) 0.69 0.81 1.15 1.38 1.61

FCF yield % (13.0 ) 6.3 6.7 6.0 9.1

Post-tax RoCE (%) 10.0 12.0 14.5 12.9 12.6

RoE (%) 14.0 14.7 17.9 15.9 14.1

Source: Company, Nirmal Bang Institutional Equities Research

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GUJARAT STATE PE Nifty 50

4 December 2019


Gujarat State Petronet 2

Risks: (i) Lower-than-expected growth in gas consumption and regulatory overhang on transmission tariff (ii) threat of open access in at least 12 CGD areas in subsidiary GGAS post the end of marketing exclusivity – this may not affect GSPL volume directly, but can dampen the impact of GGAS valuation for GSPL TP (38% share) (iii) uncertainties on gas pricing and execution/scale up pf new CGD projects that dampen gas demand growth prospects and (iv) sensitivity of key demand drivers, including CGD, power and fertilizers to gas pricing and potential fall in the price of competing petroleum fuel prices.

Rating rationale and valuation

Our Buy call is based on long term value based on the following:

GSPL is India’s second largest gas transporter, operating 2621 kms gas transmission grid (43mmsmcd capacity) in Gujarat (known as the country’s gas hub) with 33% share in India’s gas demand.

Most of India’s 75 mmscmd of LNG imports are handled by ports in Gujarat – 17.5mn TPA by PLNG at Dahej and 5mn TPA by Shell LNG at Hazira.

Earnings leveraged to likely step change in long term volume, supported by healthy gas demand

The PNGRB which approved GSPL’s gas grid in 2012 announced a revised transmission tariff of Rs34/mmbtu in 2018, subject to open access rules. This gives visibility on GSPL’s revenue and earnings for the next 4-5 years until it comes up for the regulators next review

GSPL offers steady annuity business with de-risked growth prospects, driven by investments in existing and new CGD networks.

GSPL is investing in debottlenecking its gas grid and adding connectivity to existing and new LNG terminals as detailed in the following pages. These investments will raise its gas transmission capacity by 7-10 mmsmcd that could potentially raise its volume from the current 38mmscmd to around 50-53mmsmcd over the next three to four years.

Further, GSPL is gearing itself to handle the overall increase in imported LNG likely at Mundra, Jafrabad and Chhara over the next 4-5 years. This implies an aggregate increase in availability of imported gas at ports in Gujarat by 25-30mmscmd. A material portion of these additional volume should flow through GSPL’s gas grid in Gujarat and its new MBPL network that will eventually extend its reach to the northern markets.

The share of CGD in Gujarat should be around 22-25% of the state’s total gas consumption estimated at 50mmscmd

CGD has 17% share in Indian gas consumption, which is likely to reach 20-25% over time.

India’s overall gas consumption will likely nudge 200mmscmd over the next 3 years vs. current demand of 172mmscmd.

This is likely to be led by 7-8% growth in CGD, on a conservative basis.

Our SOTP based TP of Rs303 offer 41.1% upside

Attractive cash flows and valuation with FCF yield at 6-9.1% over FY21-FY22E

SOTP based TP of Rs303 based on DCF for transmission business and market value of GGAS stake

1) We value GSPL’s standalone business using DCF to capture the growth over a horizon of 10 years and the terminal value assuming a terminal growth of 2% as GSPL’s gas transportation business (dominated by the mature gas market in Gujarat) may slow down and lag the overall industry growth to perpetuity likely at 3-4%.

2) We value the 52% stake in GSPL India Gasnet Limited (GIGL), the SPV (building the Mehsana Bhatinda Amritsar Srinagar pipeline MBPL) - using DCF model to arrive at the gross EV and equity value. We then compute the value of GSPL’s stake in GIGL at 52% of GIGL’s gross equity value.

3) We also value its 54.17% stake in city gas subsidiary GGAS based on its market cap and assigning a 20% conglomerate discount. We have estimated the value of GSPL’s stake in GGAS at 54.17% of the latter’s gross equity value of ~Rs114/share.



Based on this we arrive at GSPL’s valuation as the sum of the following values:

1. GSPL standalone valuation Rs216/share

2. GSPL 52% stake in this SPV is valued Rs13/share

3. GSPL’s 54% stake in GGAS is worth Rs114/share (at 20% discount to GGAS market cap worth Rs114/share of GSPL)

4. Other investments at book value at cost, including GSPL’s 52% stake in east coast pipeline under the SPV GSPL India Transco Limited (GITL) ~Rs6/share

5. Adding values under 1 to 4 as above, we get an aggregate gross valuation of Rs349/share.

6. We have then applied a 20% discount - for regulatory and execution/gas market risks - on the aggregate value (excluding GGAS), estimated as above to arrive at our TP for GSPL:

→ GSPL TP = Rs349 less {20%x (216+13)} = Rs303/share

Exhibit 1: Summary of GSPL SOTP based TP estimation

GSPL parts

Method Equity value Rs/sh Remarks

Gas transportation A

DCF 216 Implied PE of 10.4x Sep 21E

GIGL - B 52% stake DCF 13 na

GGAS- C 54.17% stake market cap 114 20% discount – for holding co.

GSPL’s other investments -D - - 6 GSPL’s unlisted holdings, including GITL- 52% and Sabarmathi Gas -27,5%

GSPL VALUATION - E A+B+C+D - 349 -

*Discount - F 20%*(A+B) 20% 46 F= 20% for execution/gas market risk in GSPL / GIGL

GSPL TP E-F - 303 -

CMP

217 -

Upside

39.8% -

upside excl. exe risk

60.9% -

Note: *F - Execution/gas market risk for GSPL; Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 2: Stress valuation

GSPL value SOTP

Target price Downside from TP

Upside from CMP

Remarks

10% fall in tarrifs - 178 273 -10% 25.8% captures regulatory risk on tariffs

10% fall in volumes 208 297 -2.1% 36.9% builds in risk of lower demand or gas supply constraints

No terminal value - FCFF until 2035 131 236 -22.2% 8.8% FCFF Y21-FY35, Nil terminal Value+ 20% execution risk


Exhibit 3: Valuation of GSPL stake in GGAS

GGAS mkt. capitalization Rsmn - 148,763

GSPL stake 54.17% 80,585

Per share value - 143

conglomerate disc 20% -

total discount 20% 29

GGAS stake /GSPL share 114


The stock trades at 10.4x PE on FY21 Sept.EPS. Our TP implies a Sep 21E PE of 14.6x.

The stocks 5 year median PE is 13.9x and the last 5 years average book value is 1.63x.



Exhibit 4: Summary DCF valuation – GSPL standalone

Valuation parameters

Cost of equity % 9.3%

Terminal Year growth % 2.0%

Terminal value Rs Mn 161,896

PV of terminal value Rs Mn 66,533

PV of FCFF Rs Mn 79,180

Enterprise Value Rs Mn 145,713

FY19 Net Debt Rs Mn 23,996

Equity Value Rs Mn 121,716

Shares outstanding Mn 564

Equity value Rs per share 216

CMP 217

Downside % (0.5)


Exhibit 5: Summary DCF valuation GIGL - MBPL

Valuation parameters

Cost of equity % 9.3%

Terminal Year growth % 2.0%

Terminal value Rs Mn 15,478

PV of terminal value Rs Mn 6,948

PV of FCFE Rs Mn 6,840

GIGL equity value Rs Mn 13,788

GSPL stake 52%

GSPL’s share of equity Value Rs Mn 7,170

Shares outstanding Mn 564

Equity value Rs per share 13


For DCF assumptions and models for all the above – pl refer annexure -1

Impact of volumes and tariffs on SOTP:

10% decline in annual volumes vs NB assumption implies SOTP value of Rs297

10% decline in tariffs vs. base case implies SOPT value of Rs 273

Exhibit 6: Impact of terminal growth/WACC on GSPL TP

Terminal growth

WACC↓ 0 1 2 3 5

9.2 322 334 349 369 437

10.2 299 308 319 333 377

8.2 349 366 387 417 532


GITL project on hold barring the 363 km East Godavari-Ramangundam section

GITL has been created to lay the Mallavaram - Bhopal – Bhilwara – Vijaipur pipline (MBBVPL -1881 Kms) awarded by the PNBRGB on competitive bidding

GSPL told us that phase I of the 363km pipeline between East Godavari and Ramagundam (to revive FCI’s troubled Urea project) has been completed. GITL is ready to transport the contracted 2 mmscmd of gas once the Ramagundam unit is ready to receive the gas – the timeline is not clear as on date.



The other larger sections of MBBVPL won by GITL are on hold, according to GSPL management, pending assessment of the viability of this project based on detailed assessment of potential gas demand and transportation volume.

Since the potential volume appears to be modest at just 2 mmsmcd – just 5% on GSPL’s current volume - the impact of GITL’s earnings or DCF value on GSPL’s 52% stake GITL is unlikely to be significant. Hence, we have chosen to value GSPL’s stake in GITL at cost - Rs1.98bn or ~Rs3.5/share impact on GSPL TP.

If the MBBVPL project is taken up for investment at a later date, the valuation of MBBVPL using a DCF model could potentially throw up a value similar to GIGL adjusted for (i) the lower tariff (at Rs33/mmbtu vs. Rs42/mmbtu for GIGL) and (ii) the difference in gas transmission volume. This could be a potential upside for GSPL’s valuation in future.

Steady annuity business with de-risked growth prospects

The company offers an earnings model that will benefit from growth in consumption of gas piped through its gas network in Gujarat, irrespective of whether it is APM gas, existing Non APM domestic gas, KG gas or LNG. The price of the gas based on whether it is domestic or imported is unlikely to impact revenue and earnings for GSPL unless

i) Gas faces the threat from a cheaper and cleaner substitute, which looks remote in the foreseeable future or

ii) Gas demand in markets serviced by GSPL gas grid does not grow as expected

And given the huge investments being made in CGD, the future outlook for Indian natural gas demand looks robust, giving the comfort of steady annuity cash flows for GSPL, which operates in a growth sector. CGD currently has 17% share in Indian gas market. In Gujarat, the share of CGD should be around 22-25% of the total consumption, which the company estimates at 50mmscmd.

Gujarat has 33% share in Indian gas demand

Gujarat accounts for a third of India’s gas consumption (145mmscmd in FY19)

The state is home to 22.5mn tpa of LNG import capacity out of 32.5mn tpa in operation.

The GSPC LNG terminal at Mundra (5mn TPA) is reported to be ready and likely to start imports between 4QFY20 and 1Q next year.

Further, we see the Jafrabad floating LNG terminal starting over the next two years and HPCL’s Chhara by 2023 end

GSPL is positioning itself to take advantage of the surge in gas supplies from these new LNG terminals based on investments on connecting pipelines to these facilities and expanding the high pressure gas grid capacity from the current 43mmscmd to an estimated 50-53mmscmd, according to management.

The Ajnar – Mundra link pipeline is ready to move LNG from Mundra LNG terminal through GSPL gas grid.

The project for Dahej – Bhadhbhut link pipeline along with increase in compressor capacity in Gana is underway and expected to b completed in 18 months at a cost of Rs3bn. The company is also planning to create a link to the Jafrabad LNG terminal of Swan Energy.

Further GSPL management is also likely to invest in connecting the gas grid with Chhara LNG terminal in future.



Exhibit 7: GSPL gas grid maps



Indian natural gas demand and supply

Exhibit 8: Gas demand estimates across segments

MMSCMD

Inc in gas demand

3 years mmscmd Inc in gas demand

3 years –Mn Tonne/yr of LNG CAGR%

Segments FY19E# FY20E FY23E FY20-23E

Fertilizer 42.8 44.3 53.0 8.7 2.4 5.5%

Power 40.9 42.3 38.8 (3.5) (1.0) -1.3%

City Gas 25.5 26.4 33.2 6.8 1.9 6.8%

Refineries 21.2 21.9 21.3 (0.6) (0.2) 0.2%

Petchem 8.9 9.2 9.6 0.4 0.1 1.9%

others Incl. losses 27.1 28.0 35.1 7.1 2.0 6.7%

Total gas consumption 166.4 172.0 191.0 19.0 5.3 3.5%

Source: Crisil Research, CEA, Nirmal Bang Institutional Equities Research; Notes: #Others include miscellaneous uses and losses/internal consumption; Others estimated as reconciled figure = TOTAL consumption estimate from PPAC less consumption in each segment

Exhibit 9: Indian gas demand and supply outlook

MMSCMD FY19 FY20E FY21E FY22E FY23E FY24E FY25E FY26 FY27 FY28 FY29 FY30

Gas demand gr. % - - 3.5 3.5 3.5 4.0 5.0 5.0 5.0 5.0 5.0 5.0

Gas demand

Total demand 166.0 172.0 178.0 184.3 190.7 198.3 208.2 218.7 229.6 241.1 253.1 265.8

Gas supply existing fields

ONGC 57.0 57.0 56.0 56.0 56.0 51.0 51.0 51.0 51.0 51.0 51.0 51.0

OIL 7.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0

OTHERS PMT other JVs 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0

CBM 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0

present total domestic supply 75.0 76.0 75.0 75.0 75.0 70.0 70.0 70.0 70.0 70.0 70.0 70.0

New supplies

add ONGC new gas 11.0 14.0 14.0 14.0 14.0 29.0 29.0 29.0 29.0 29.0 29.0 29.0

RIL KG Existing - - 1.8 1.6 1.5 1.3 1.2 1.1 1.0 0.9 0.8 0.7

RIL KG new ( full gas 28mmsmcd) - - 2.3 5.8 11.7 23.3 25.3 27.3 28.3 28.3 28.3 28.3

CBM new - - - - 3.0 5.0 7.0 9.0 10.0 10.0 10.0 10.0

Total domestic supply incl. new gas 86.0 90.0 93.1 96.5 105.1 128.7 132.5 136.4 138.3 138.2 138.1 138.0

Demand supply gap for LNG 80.0 82.0 84.9 87.8 85.6 69.7 75.7 82.2 91.3 102.9 115.0 127.7

LNG imports 75.0 - - - - - - - - - - -

RIL KG new ramp up % - - 10% 25% 50% 100% 100% 100% 100% 100% 100% 100%

RIL KG new peak output - - 23.3 23.3 23.3 23.3 25.3 27.3 28.3 28.3 28.3 28.3

Source: CRISIL Research, Industry, Nirmal Bang Institutional Equities Research

GSPL has a diverse customer base

Investors have a concern that the growth potential in many new licensed areas for CGD may not be of a reasonable scale and hence the expectations of growth in gas demand may take longer to materialize.

However, GSPL’s business model is resilient given its diverse customer base in Gujarat itself in sectors like small and medium industries like ceramic tiles, glass, autos and larger buyers in power, fertilizer, petrochemicals and refining.



Leading gas grid operator in Gujarat with annuity earnings

GSPL is the second largest natural gas pipeline operator and gas transporter after GAIL with 2621kms of gas network in Gujarat handling volume of 38mmscmd. This offers annuity earnings based on fixed transmission tariffs assuming steady volume for gas being transported through its pipelines to customers in Gujarat. GSPL has historically enjoyed firm gas transportation agreements for 70-75% of its volume, with the rest on short term or interruptible contracts. This provides visibility on GSPL’s overall revenue, even if we assume the 25% open access it has to provide as per PNGRB guidelines, which may entail some volatility in its daily volume.

GSPL has delivered a massive surge in volume and PAT over the last three and five year periods

It is worth noting that there was a step change in the company’s earnings in FY10 and then between FY14-19 based on a sharp surge in volume. But in between the company had a declining phase.

The company’s PAT surged 1.5x on similar surge in volume to 37 mmscmd based on increase in supplies of KG -D6 gas.

But by FY13, GSPL’s volume dropped by 10 mmscmd to 27 mmscmd and further to a low of 21 mmscmd by FY14, resulting in a 22% crash in PAT for the year. This was due to the sharp decline in KG-D6 gas supplies, limited growth in ONGC gas and the slower demand growth for expensive LNG – then linked to JCC oil prices - which therefore became unaffordable for sensitive sectors like power and fertilizers

Over the five year period between FY11 and FY16, earnings fell 11% on a 31% decline in volume – a bad phase in GSPL’s history.

Exhibit 10: Trend in PAT vs. Volume over FY09-FY19


FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

Volumes MMSCMD 14.9 37.0 35.4 34.1 27.3 21.1 23.0 24.3 24.8 31.5 34.6

PAT Rsmn-RHS 1,234 3,138 5,060 5,220 5,380 4,190 4,103 4,454 4,966 6,684 7,947

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

0

5

10

15

20

25

30

35

40



Exhibit 11: Trend in PAT growth vs. gas volume growth over the past 10 years


Exhibit 12: Impact of a step change in volume on GSPL’s earnings

10% inc in volumes FY20E FY21E FY22E FY23E FY24E FY25E FY25E FY25E

Change in total volumes % 0% 10.0% 10.0% 10.0% 10.0% 10.0% 25.0% 50.0%

New volumes MMSCM 13,829 16,561 17,135 19,133 19,831 20,411 23,194 27,833

Unit EBITDA Rs/SCM 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2

Impact on EBITDA Rsmn 0 1,769 1,817 2,038 2,098 2,141 5,352 1,0704

Post tax impact Rsmn 0 1,324 1,360 1,525 1,570 1,602 3,369 6,738

Changed EPS Rs/sh 19.93 22.92 24.14 27.59 28.66 29.48 32.61 38.59

Upside in EPS % 0.0% 11.4% 11.1% 10.9% 10.8% 10.7% 22.4% 44.8%

EPS Gr % YoY - 15.0% 5.3% 14.3% 3.9% 2.9% 10.6% 18.3%


Massive surge in volume and earnings over the last 3-5 years

Over the last three years between FY16 and FY19, GSPL saw its fortunes revive with volume increasing to more than 34mmscmd and surpassing FY12 levels.

PAT surged 78% on 43% increase in volume over FY16-19

And 89% on 54% rise in volume over the last five years (FY14-FY19)

10% upside in volume implies 10-11% upside in earnings over FY20-25E

Our sensitivity analysis shows that a 10% increase in volume from our base case offers a potential 10-11% upside to our earnings estimates.

Earnings hugely leveraged to volume

If we were to assume a 25% to 50% upside in volume even after 5 years, we estimate FY25E EPS of Rs 32.6 – Rs38.6, implying a 22-45% upside to our base case estimate and a 10-14% CAGR in earnings over this period.

This in our view should assuage concerns on the muted growth in the company despite the expansion in the size of the grid over the last 10 years (FY10-FY19) as we have analyzed in the following exhibits:

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

Vol growth % 149 -4 -4 -20 -23 9 5 2 27 10

PAT growth % 154 61 3 3 -22 -2 9 12 35 19

Grid length kms-RHS 1,666 1,874 2,065 2,163 2,180 2,192 2,348 2,454 2,518 2,621

-

500

1,000

1,500

2,000

2,500

3,000

(25)

(5)

15

35

55

75

95

115

135

155

175



Exhibit 13: LNG terminals

LNG Terminal Entity/Promoters Status Capacity (MMTPA)

Dahej Petronet LNG Limited Operational 17.5

Hazira Hazira LNG Private Limited/Shell Operational 5

Dabhol Ratnagiri* Konkan LNG Private Limited Operational 2

Kochi Petronet LNG Limited Operational 5

Ennore Indian Oil Corporation Limited Operational 5

Mundra GSPC LNG Limited Ready for commissioning 5

Existing capacity

39.5

Jaigarh FSRU Western Concessions Private Limited Under Construction 4

Dhamra Adani Group & Total Group Under Construction 5

Chhara HPCL Shapoorji Energy Private Limited Under Construction 5

Jafrabad FSRU Swan Energy Proposed 5

Andaman and Nicobar Petronet LNG Limited Proposed 0.2

Gangavaram Petronet LNG Limited Proposed 5

Haldia Venerable LNG Private Limited Proposed 3

Karaikal FSRU AGP Karaikal LNG Private Limited Proposed 1

Krishnapatnam FSRU Krishnapatnam Port/BPCL Proposed 5

Proposed/Upcoming Capacity 33.2

Note: *5 MMTPA with breakwater; Source: PNGRB, Nirmal Bang Institutional Equities Research

Plans to link LNG terminals in Gujarat with state gas grid

Once the Mundra and Chhara LNG terminals are in operation and GSPL’s proposed pipelines to link up with these two LNG facilities are in place, GSPL’s gas grid will have connectivity with all the LNG terminals in Gujarat, including Hazira, Dahej and Jafrabad in addition to Mundra and Chhara.



GSPL business outlook

Investing for growth

The company is investing in expanding its existing gas grid and also setting up new pipelines outside Gujarat, which is likely to support future growth in volume and earnings. This should offset the concerns of modest growth outlook in the next 1-2 years as a result of likely drop in refinery segment volume once Reliance starts its petcoke gasification project. According to the company, the downside is unlikely to be more than 5-10% of GSPL transmission volume, assuming that RIL’s share drops from 9 mmscmd (out of refinery segment share – 13 mmscmd) to 6 mmscmd.

Exhibit 14: Opg. Assumptions and margins – GSPL

FY19 F20E FY21E F22E

Gas transmission volumes - mmscmd 34.57 37.89 41.25 42.68

Rs/scm

Gas trans. Tariff 1.49 1.61 1.47 1.47

Opg cost 0.27 0.45 0.30 0.30

EBITDA 1.22 1.16 1.17 1.17

PAT 0.95 0.94 1.01 1.04

Growth % FY19 F20E FY21E F22E

Gas transmission volumes 9.6 9.6 8.9 3.5

Revenue 41.0 18.9 -0.7 3.4

EBIDTA 34.4 4.2 10.1 2.7

PAT 18.9 39.9 2.4 6.1

Margin analysis % FY19 F20E FY21E F22E

Gross contribution 94.6 84.2 93.2 93.2

EBITDA 82.2 72.0 79.8 79.3

EBIT (excl other inc) 72.6 63.0 70.4 69.9

PBT 64.1 58.3 68.7 70.5

Net profit Adj. 42.3 49.8 51.4 52.7


Earnings outlook

Refining and CGD dominate GSPL’s current volume mix 33%/27%, followed by power and fertilizer sectors. The share of refining is likely to reduce by 3 mmscmd (8% of GSPL volume) from the current 13 mmscmd over the next one to two years, assuming the potential reduction in gas offtake by RIL once its petcoke gasification plant starts full scale operations. Management expects growth from CGD, Power and other segments and the reverse flow of Cairn gas from Rajasthan to Mehsana to offset the impact over 2-3 years. We therefore expect earnings to be flat over FY21-22E after the 41% surge expected in FY20E based on YTD PAT growth of 38%.

Exhibit 15: Refining and CGD dominate GSPL transmission volumes


2.92 5.47 4.97 4.54 5.88 4.22

4.38 3.82 4.2 4.31 8.44

7.66 10.31 8.05 10.58

12.01 14.22 13.37 14.7

12.93 4.87

4.74 5.35 3.50

5.49

0

10

20

30

40

50

Q4FY19 1QFY19 1QFY20 2QFY19 2QFY20

Segment share of GSPL transmisson volumes mmscmd

Power Fertilizer CGD Refinery Others

9.0 15.0 13.1 13.0 15.0 13.0

12.0 10.1 12.0 11.0

26.0 21.0 27.3 23.0 27.0

37.0 39.0 35.4 42.0 33.0

15.0 13.0 14.1 10.0 14.0

0

20

40

60

80

100

120

Q4FY19 1QFY19 1QFY20 2QFY19 2QFY20

Share of customer segments in volumes %

Power Fertilizer CGD Refinery Others



Mehsana-Bhatinda-Jammu-Srinagar Pipeline Project to boost GSPL volume

GSPL India Gasnet Limited (GIGL), promoted by GSPL Company, has already commissioned 440 Kms of pipeline sections of the Mehsana-Bhatinda-Jammu-Srinagar Pipeline Project (MBPL) awarded by the PNGRB on competitive bidding. The completed lines include (i) Palanpur-Pali (ii) Barmer-Pali and (iii) Jalandhar-Amritsar of

Gions, and is likely to help feed gas to demand centres, including, Banaskantha, Sirohi, Pali, Jalore, Barmer, Jalandhar, Kapurthala, Gurdaspur and Amritsar districts. All the remaining sections of the MBPL are proposed to be completed by the end of 2020, according to GSPL management.

MBPL to start operations in FY21 at 30% utilization

GIGL’s MBPL pipeline will start the first full year of commercial operation with 9mmscmd of volume in FY21. This will help the pipeline achieve 30% utilization on its capacity of 30 mmscmd.

This is based on

i) bringing 5mmscmd of Cairn gas from Rajasthan’s Raageshwari block to Gujarat and

ii) demand from IOC and HPCL’s refineries in Panipat and Bhatinda, respectively

iii) and other segments in the three states serviced by MBPL

Eventually, GSPL expects GIGL to reach 80% utilization over the next 4-5 years based on CGD expansion in Rajasthan and Punjab and J&K, as well as growth in other industrial and commercial segments.

The SPV is jointly promoted by GSPL (52% stake), IOC (26%), BPCL (11%) and HPCL (11%) at an estimated project cost of Rs55bn

We understand that GSPL has already invested Rs 5bn (overall equity commitment of Rs8.6bn) – towards the cost of Rs38bn already incurred on the project as of September 2019.

Exhibit 16: Opg. Assumptions –- GIGL

FY22E FY23E FY24E FY25E

Gas transmission vol - mmscmd 9.0 12.2 15.2 19.7

Rs/scm

Gas trans. Tariff 1.7 1.7 1.7 1.7

Opg cost 0.2 0.2 0.2 0.2

EBITDA 1.5 1.5 1.5 1.5

Rs mn

Revenue 5,216 7,071 8,810 11,441

EBITDA 4,595 6,229 7,761 10,079

PAT -1,203 483 1,935 3,976

GSPL share of JV 52% 52% 52% 52%

GSPL sh of GIGL PAT -626 251 1,006 2,068

impact per sh of GSPL -1.11 0.44 1.78 3.67




GSPL financials in charts

Exhibit 17: Steady growth in volumes at stable transmission tariff


Exhibit 18: Improving cash flows and net debt


Exhibit 19: Steady PAT and RoE trend


FY14 FY15 FY16 FY17 FY18 FY19 FY20

E FY21

E FY22

E

Gas transmission vol mmsmcd

21.0 23.0 24.3 24.8 31.5 34.6 37.9 41.2 42.7

Tariff Rs/scm-RHS 1.32 1.37 1.52 1.11 1.13 1.48 1.44 1.61 1.47

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

0

5

10

15

20

25

30

35

40

45

9.5

5.4

2.1

27.4

9.7 9.6 8.9

3.5

FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E

Gas transmission volume growth %

FY19 FY20E FY21E FY22E

PAT Rsmn 7,947 11,118 11,385 12,083

Opg. cashflow Rsmn 10,882 14,360 13,879 14,005

Free cashflow Rsmn-RHS

10,803 10,954 9,392 13,299

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000


Net Debt Rsmn 23,996 16,493 10,326 167

Opg. cashflow Rsmn 10,882 14,360 13,879 14,005

Capex Rsmn-RHS 2,165 1,600 1,600 1,600

-

500

1,000

1,500

2,000

2,500

0

5,000

10,000

15,000

20,000

25,000

30,000

7,947

11,118 11,385 12,083

14.70

17.89

15.92

14.06

-

2

4

6

8

10

12

14

16

18

20

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000


PAT Rs Mn ROE %-RHS

(%) (Rsmn)



GSPL Valuations charts

Exhibit 20: Five year median PE band trend


Exhibit 21: 5 year trend in PE and P/BV vs Earnings and RoE


Exhibit 22: Price performance trend


0

2

4

6

8

10

12

14

16

18

20

Apr

-14

Aug

-14

Dec

-14

Apr

-15

Aug

-15

Dec

-15

Apr

-16

Aug

-16

Dec

-16

Apr

-17

Aug

-17

Dec

-17

Apr

-18

Aug

-18

Dec

-18

Apr

-19

Aug

-19

Dec

-19

median PE SD +1 SD -1 Forward P/E

(x)

-

2

4

6

8

10

12

14

16

18

FY15 FY16 FY17 FY18 FY19

EPS Rs P/E (x) Average PE

-

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

0

2

4

6

8

10

12

14

16

FY15 FY16 FY17 FY18 FY19

ROE %-LHS P/BV (x) Average P/BV

1.64

1.09

9.92

15.51

2.66

9.64

2.24

12.94

1 Month

3 Month

6 Month

1 Year

Nifty Index GUJS IN Equity



Exhibit 23: Domestic Peer comparison

Code CMP Mkt cap Revenue (mn) Net Profit (mn) EPS (Rs) PE (x)

(Rs) (US$bn) FY20E FY21E FY22E FY20E FY21E FY22E FY21E FY22E FY21E FY22E

PLNG IN Equity 276 5.8 363,566 442,764 442,764 29,352 32,537 34,677 21.69 23.12 12.82 12.03

GAIL IN Equity 123 7.8 670,219 711,732 763,088 60,991 67,718 65,803 15.29 15.97 8.08 7.74

GUJS IN Equity 217 1.7 22,322 22,161 22,917 11,118 11,385 12,083 20.19 21.42 10.75 10.13

IOCL IN Equity 128 16.9 5,125,441 5,727,298 6,358,779 118,033 181,245 172,462 12.86 19.74 6.76 7.11

HPCL IN Equity 274 5.8 2,717,030 2,932,186 3,077,088 44,147 61,778 55,591 40.53 36.47 7.30 8.12

BPCL IN Equity 495 15 2,955,668 3,265,896 3,642,372 71,602 88,271 96,809 44.88 49.22 11.41 10.40

IGL IN Equity 420 4.1 73,334 84,248 98,458 11,784 13,298 16,146 19.00 23.07 22.10 18.20

MAHGL IN Equity 1,027 1.4 30,816 36,584 39,021 8,237 8,897 9,686 90.07 98.06 11.67 10.72

Average

33.06 35.88 11.36 10.55




ANNEXURE 1

Exhibit 24: DCF model assumptions and cash flows – Standalone GSPL

FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30

Volumes mmsmcd 41.2 42.7 47.7 49.4 50.8 50.8 50.8 50.8 50.8 50.8

Tariff Rs/unit 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35 1.35

Revenue 22,161 22,917 25,549 26,469 27,233 27,233 27,233 27,233 27,233 27,233

Opg cost 4,473 4,749 5,171 5,494 5,825 5,825 5,825 5,825 5,825 5,825

EBITDA 17,687 18,168 20,378 20,976 21,408 21,408 21,408 21,408 21,408 21,408

Depreciation 2,078 2,150 2,217 2,281 2,345 2,425 2,580 2,735 2,890 3,045

EBIT 15,609 16,019 18,161 18,694 19,063 18,983 18,828 18,673 18,518 18,363

Tax 3,929 4,032 4,571 4,705 4,798 4,798 4,739 4,700 4,661 4,622

EBIT(1-t) 11,681 11,987 13,590 13,989 14,265 14,185 14,089 13,973 13,857 13,741

Add Dep 2,078 2,150 2,217 2,281 2,345 2,425 2,580 2,735 2,890 3,045

Opg Cashflow 13,758 14,136 15,807 16,270 16,610 16,610 16,669 16,708 16,747 16,786

less:W/Cch (21) 99 343 120 100 100 100 100 100 100

Less:Capex 1,600 1,600 1,600 1,600 1,600 3,100 3,100 3,100 3,100 5,100

FCFF 6,090 12,438 13,864 14,550 14,910 13,410 13,470 13,509 13,548 11,587

PV of FCFF 5,829 10,440 10,661 10,251 9,624 7,931 7,298 6,705 6,161 4,827


Exhibit 25: DCF model assumptions and cash flows- GIGL

FY22E FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30

PAT (1,203) 483 1,935 3,976 5,637 6,619 7,277 7,773 8,177

Depreciation 1,833 1,755 1,730 1,706 1,682 1,660 1,638 1,617 1,597

Opg. cash 630 2,237 3,665 5,682 7,319 8,279 8,915 9,390 9,774

Capex. - 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000

FCFF 630 1,237 2,665 4,682 6,319 7,279 7,915 8,390 8,774

Ch. in LT Borrowings (3,850) (3,850) (3,850) (3,850) (3,850) (3,850) (3,850) (3,850) (3,850)

Ch. in ST borrowings 5,000 2,500 - - - - - - -

Dividends - - - - - (1,986) (2,183) (2,332) (2,453)

Financing CF 1,150 (1,350) (3,850) (3,850) (3,850) (5,836) (6,033) (6,182) (6,303)

FCFE 1,780 (113) (1,185) 832 2,469 1,443 1,882 2,208 2,470

PV of FCFE 1,629 (95) (907) 583 1,582 846 1,009 1,083 1,109




Annexure 3

Natural gas overview

Natural gas when burned releases up to 50% less CO2 than coal and 20-30% less than oil, and when used in power generation, it emits as much as 50% less CO2 than coal, according to IEA data. The global transition to clean energy makes natural gas a clean energy alternative.

Exhibit 26: Natural gas vs. other fuels as a cleaner fuel

fuel Emissions LPG Diesel Gas

CO2 (Kg / MMBTU) 61.71 70.22 53.07

N2O (g / MMBTU) 0.6 0.6 0.1

Methane (Kg / MMBTU) 3 3 1

Source: USEPA, Nirmal Bang Institutional Research

Four basic forms of natural gas:

Liquefied Natural Gas (LNG) - Natural gas liquefied at (Minus) 161 degree celsius is used as transportation fuel for road and marine transport. LNG is also being considered for railway transport in its liquid form after a successful experimental run with CNG conducted on 21 trains. Trains running on CNG can result in 8-11% savings against diesel but the gas storage cylinders are as large as 1/3rd of a coach. LNG is preferred over CNG as it occupies less storage space and offers higher mileage for the same quantity of fuel.

Re-gasified Liquefied Natural Gas (RLNG) - Imported LNG is re-gasified before transporting to consumers through pipelines and used as fuel, feedstock and raw material. The re-gasified LNG is the same as the gas produced in offshore and onshore oil & gas fields – either associated or free. Please note that irrespective of the source, the gas produced in fields or LNG may initially contain mainly lean methane gas or contain higher hydrocarbon gas fractions – ethane, propane or butane that can be extracted and used as petrochemical feedstock offering higher value.

Compressed Natural Gas (CNG) – Natural gas compressed to a pressure of 200-250 kg/cm2 used as fuel for transportation.

Piped Natural Gas (PNG) – Natural gas distributed through a pipeline network to the domestic sector for cooking and heating/cooling applications.

India is the fourth largest importer of LNG after Japan, China and Korea, and imported 26.11bcm in FY18, up 6.6% YoY in FY18. Government has allowed 100% FDI in the natural gas segment of the energy sector to reduce its dependence on imported crude oil. Prime Minister Narendra Modi has set a target to reduce dependency on imported oil by 10% by 2022.

India is the third largest energy consumer in the world after the US and China. It is expected that India will increase its share in global energy basket but not all the increase in demand will be satisfied from traditional fuels; share of natural gas for India is expected to go up from 6% to 15% in the coming years.

Exhibit 27: Current mix of fuel consumption across countries

Region Oil% Natural Gas% Coal% Nuclear Energy% Hydro Electric % Renewable % MTOE

World 34.2 23.4 25.4 4.40 6.80 3.60 13,511

OECD 39.4 25.7 15.9 7.9 5.6 5.4 5,605

Non OECD 30.5 21.7 35.9 1.9 7.6 2.3 7,906

Asia Pacific 28.6 11.5 48.4 1.9 6.5 3 5,744

China 19.4 6.6 60.4 1.8 8.3 3.4 3,132

India 29.5 6.2 56.3 1.1 4.1 2.9 754

Bangladesh 22.7 69.4 7 - 0.6 0.3 33

Pakistan 36.1 43.3 8.8 2.2 8.7 1 81

Source: BP Statistical World Energy Review, 2018; MTOE – million tonne of oil equivalent



Annexure - Indian Natural Gas overview

Indian natural gas market

Exhibit 28: Natural gas demand in India

Source: PNGRB, PPAC

Domestic natural gas production has been on a decline from 46,453MMSCM in FY12 to 30,056MMSCM in FY19. As a result, there is an increase in the share of LNG imports in India’s natural gas supply from 28% in FY12 to 47% in FY19. With the inclination of government towards the usage of natural gas, a cleaner fuel, demand for natural gas fuelled by CGD and fertiliser sector is expected to be on the rise at 3.6-4.1% CAGR over the next five years. Dependence on LNG is expected to continue at the same rate of 46-50% despite the expected improvement in domestic gas supply mainly coming from CGD (Industrial) and Fertilizer given their high priority status in domestic gas supply and favourable government policy.

Exhibit 29: Sector-wise share of total demand in India

Source: Crisil Research, Nirmal Bang Institutional Equities Research

Initiatives from the government to promote gas usage in India

Use of CNG in public transport in certain cities

Ban on Pet coke and furnace oil in Delhi, Haryana, UP and Rajasthan

Priority allocation of domestic natural gas to CGD sector (granted public utility status)

To connect 10mn households to PNG by 2020

116 13

0 139

144

152 16

8 183 19

4

116 13

0 139

144 16

7 190

219

252

0

50

100

150

200

250

300

FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E

Normalized Bull

In MMSCMD

28 26 28

21 25 20

13 15 17

10 13 11

6 5 5

22 16 19

FY17 FY20E FY23E

Fertiliser % Power % CGD % Refinery % Petrochemicals % Others %



Exhibit 30: Existing natural gas pipelines

Name of Entity Name of pipeline Length in KM % share Capacity (MMSCMD)

GAIL

HVJ-GREP-DVPL 4,554 27.9 53

GREP DVPL Upgradation 1,385 8.5 54

CJHPL 310 1.9 5

DUPL-DPPL 928 5.7 19.9

DBNPL 852 5.2 31

DHABOL-BANGALORE PIPELINE 1,116 6.8 16

KKBMPL 48 0.3 6

Tripura 60 0.4 2.3

Rajasthan 151 0.9 2.35

Gujarat# 685 4.2 15.42

Mumbai 131 0.8 7.03

KG Basin (including RLNG+RIL) 884 5.4 16

Cauvery Basin 306 1.9 8.66

Reliance East- West Pipeline (RGTIL) 1,480 9.1 80

Reliance Shahdol-Phulpur Pipeline (RGPL) 304 1.9 3.5

GSPL GSPL network including spur lines 2,692 16.5 43

AGCL/DNPL Assam Regional Network 297 1.8 3.24

IOCL Dadri-Panipat 140 0.9 10

Total 16,324 100.0 356

Source: PPAC Monthly Reckoner June, 2019

#GAIL's Ahmedabad, Bharuch and Vadodara pipelines have been clubbed under Gujarat network

Uran -Trombay of ONGC is for internal consumption (24km);

Exhibit 31: Trend of natural gas consumption in India

Source: PPAC, Nirmal Bang Institutional Equities Research; Note: Internal consumption is included

At present, there are 31 urea units in the country, of which 28 units are gas-based and connected to natural gas grid while the remaining three units use naphtha as feedstock for the purpose of manufacturing urea. Daily requirement of gas for these manufacturing units is 42.8MMSCMD (in FY19), although less than 50% (17MMSCMD) of the requirement is supplied to the units due to limited availability of domestic natural gas. The government policy gives preferential allocation of cheap domestic gas at government price (APM gas) for CNG and PNG for households and has provided an upper limit of 31.5MMSCMD to the fertiliser sector. Hence, the gap is filled by imported LNG.

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19*

LNG import MMSCM 17,997 17,614 17,801 18,607 21,388 24,849 27,439 28,692

Net Production MMSCM 46,453 39,753 34,574 32,693 31,129 30,848 31,731 32,056

Total Consumption MMSCM 64,451 57,367 52,375 51,300 52,517 55,697 59,170 60,747

Share of LNG imports% (RHS) 28% 31% 34% 36% 41% 45% 46% 47%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000



Exhibit 32: Gas based urea plants pipeline

Type Plant State Capacity MTPA Connectivity Expected

Greenfield/Expansion CFCL-III Rajasthan 1.3 Commissioned Jan 19

Conversion MCFL-Mangalore Karnataka 0.4 Expected by Sept 19

Conversion SPIC-Tuticorin Tamil Nadu 0.6 Fiscal 2021/2022

Conversion MFL-Manali Tamil Nadu 0.5 Fiscal 2020

Revival Barauni Bihar 1.2 Connected

Revival Gorakhpur UP 1.2 Connected

Revival Sindri Jharkhand 1.2 Fiscal 2022

Total 6.5




Indian Natural gas pricing:

Exhibit 33: Contracted LNG price and spot LNG price


Exhibit 34: Trend in domestic natural gas price and gas price ceiling for HT/DW fields

Source: PPAC, Nirmal Bang Institutional Equities Research; note: HT- High temparature/DW- Deep water

Exhibit 35: Domestic gas supply and LNG affordability across sectors

Priority in domestic gas supply LNG affordability factors

CNG & Domestic PNG

100% demand met through domestic gas Significant savings compared to alternate fuels such as Petrol, LPG

Fertilizer Second in line after CNG & Domestic PNG segment Fuel cost pass through permits 100% LNG usage upto US$14/mmbtu LNG price

Power It is third in the priority list for domestic gas supply LNG price has to be competitive with domestic gas for delivered cost of power to be Rs5-5.5/unit

Refining & Petchem

No incremental supply is expected. Existing supply diverted to core sectors

LNG cheaper than Naptha which is the primary competition

CGD- Small Industries

No incremental supply is expected. Existing supply diverted to core sectors

Spot LNG is price competitive vs. furnace oil


13.7

10.9

7 7.9

9.8 9.95 9.05 11.3

7.4 6.6

8 8.9

6.25 6.75

FY15 FY16 FY17 FY18 FY19 FY20E FY21E

Contracted LNG Price $/MMBTU Spot LNG Price $/MMBTU

5.05 4.66

3.82 3.06

2.5 2.48 2.89 3.06 3.36

3.69 3.23

6.61

5.3 5.56 6.3

6.78

7.67

9.32

8.43

Nov

-Mar

15

H1F

Y16

H2F

Y16

H1F

Y17

H2F

Y17

H1F

Y18

H2F

Y18

H1F

Y19

H2F

Y19

H1F

Y20

H2F

Y20

Domestic Natural Gas Price (US$/MMBTU) Gas Price Ceiling (US$/MMBTU)



City gas network

With the Government’s focus to expand natural gas grid with the help of the PNGRB, more cities will get access to natural gas. Therefore, the outlook for CNG used in transportation and PNG used in households/industries will get better. Currently, there are 3.4mn CNG vehicles, 1,730 no. of CNG stations and 5.1mn PNG connections in the country (June 2019). PNGRB has set ambitious targets in terms of new CNG stations and PNG connections as well as pipelines for the GA’s awarded in the 9th (65 nos.) and 10th rounds (50 nos.)- CNG stations 4603/3578, PNG connections 21mn/20mn for 9th and 10th rounds respectively.

Exhibit 36: Details of CNG stations and vehicles across states in India

State Company name No. of CNG stations No. of CNG vehicles

Andhra Pradesh Bhagyanagar Gas Ltd, Godavari Gas Pvt.Ltd., Megha Engineering & Infrastructures Ltd.

44 19,794

Bihar GAIL (India) Ltd. 2 0

Chandigarh Indian Oil-Adani Gas Pvt. Ltd. 5 7,500

Daman and Diu Indian Oil-Adani Gas Pvt. Ltd. 3 1,000

Delhi/NCR Indraprastha Gas Ltd . 482 10,65,603

Gujarat & Dadra Nagar Haveli Sabarmati Gas Ltd, Gujarat Gas Ltd, Adani Gas Ltd, Vadodara Gas Ltd,Hindustan Petroleum Corporation Ltd, Charotar Gas Sahakari Mandal Ltd,IRM Energy Ltd.

548 9,25,286

Haryana Haryana City Gas Distribution Ltd, Adani Gas Limited,GAIL Gas Ltd.,Indraprastha Gas Ltd. , Indian Oil-Adani Gas Pvt. Ltd.

66 1,59,783

Karnataka Gail Gas Ltd., Megha Engineering & Infrastructures Ltd. 13 1,093

Kerala Indian Oil-Adani Gas Pvt. Ltd. 4 900

Madhya Pradesh Aavantika Gas Ltd, GAIL Gas Ltd 43 35,996

Maharashtra Mahanagar Gas Ltd, Maharashtra Natural Gas Ltd, Gujarat Gas Limited,Mahesh Gas Ltd, Unison Enviro Private Limited

313 9,22,439

Odisha GAIL (India) Ltd. 6 2,640

Punjab IRM Energy Pvt. Ltd., GSPL 6 2,202

Rajasthan Rajasthan State Gas Limited 5 8,438

Telangana Bhagyanagar Gas Ltd. 45 24,980

Tripura Tripura Natural Gas Co. Ltd 9 11,688

Uttar Pradesh GAIL Gas Ltd, Sanwariya Gas Ltd, Green Gas Ltd, Central U.P. Gas Ltd, Siti Energy Ltd, Adani Gas Ltd, Indian Oil-Adani Gas Pvt. Ltd.,Torrent Gas Pvt Ltd., GAIL (India) Ltd.

128 1,54,091

Uttarakhand Indian Oil-Adani Gas Pvt. Ltd. 1 100

West Bengal Great Eastern Energy Corporation Ltd. 7 3,756

All India - 1,730 33,47,289




Exhibit 37: Trend in CNG sales across key states in India

CNG sales in India (TMT) No. of Cos. FY19 FY15 FY16 FY17 FY18 FY19P No. of CNG Vehicles

AP/Telangana 3 26 27 29 32 31 44,774

Chandigarh 1 - - 0 5 15 7,500

Daman and Diu 1 - -

1 2 1,000

Delhi/NCR 1 717 738 804 1,016 1,144 10,65,603

Gujarat & Dadra Nagar Haveli 7 476 503 546 612 662 9,25,286

Haryana 5 72 75 109 144 179 1,59,783

Karnataka 2 - - 0 0 0.3 1,093

Kerala 1 - - - - - 900

MP 2 17 19 22 25 31 35,996

Maharashtra 5 531 565 593 630 702 9,22,439

Odisha 1 - - - 0 1 2,640

Punjab 2 - - -

1 2,202

Rajasthan 1 3 4 4 5 7 8,438

Tripura 1 10 11 12 13 15 11,688

UP 9 185 212 245 153 282 1,54,091

Uttarakhand 1 - - - - 0.1 100

West Bengal 1 1 1 2 2 3 3,756

Total 2,038 2,155 2,366 2,638 3,075 33,47,289

Source: Ministry of Petroleum and Natural Gas June 2019

P=Provisional

Exhibit 38: Details of PNG customers (nos.) across segments in various states in India

State Geographical area/city covered Entity PNG connections

Domestic Commercial Industrial

Vijaywada Bhagyanagar Gas Limited 5,658 10 0

Kakinada Bhagyanagar Gas Limited 20,573 85 1

Andhra Pradesh

West /East Godavari Godavari Gas Pvt.Ltd. 322 6 0

Krishna District excl. area already authorized Megha Engineering &Infrastructures Ltd.

2,882 19 3

Total 29,435 120 4

Assam Upper Assam GA Assam Gas Company Limited

32,469 1,074 402

Total 32,469 1,074 402

Bihar Patna district GAIL (India) Ltd. 0 0 0

Total 0 0 0

Chandigarh Chandigarh GA Indian Oil-Adani Gas Pvt. Ltd.

9,598 0 1

Total 9,598 0 1

Daman and Diu Daman Indian Oil-Adani Gas Pvt. Ltd.

506 22 9

Total 506 22 9

Delhi/NCR National Capital Territory of Delhi (including Noida & Ghaziabad) Indraprastha Gas Limited 10,92,223 2,561 1,751

Total 10,92,223 2,561 1,751

Gujarat and Dadra & Nagar Haveli

Ahmedabad City & Daskroi area excl. Already authorized area Adani Gas Ltd. 3,73,525 2,490 821

Vadodara rural Adani Gas Ltd. 561 1 90

Anand area incl. Kanjari and Vadtal villages GA Charotar Gas Sahakari Mandali Ltd

27,994 641 118



Surat-Bharuch-Ankleswar GA, Nadiad GA, Navsari GA, Rajkot GA, Surendranagar GA, Hazira GA, Valsad GA, Jamnagar GA, Bhavnagar GA, Kutch (West) GA, Amreli District GA, Dahej Vagra Taluka GA, Dahod District GA, Panchmahal District GA, Anand (excluding area authorised) district GA

Gujarat Gas Limited 13,51,340 12,275 3,523

Ahmedabad district GA HPCL (Only CNG) 0 0 0

Banaskantha / Palanpur district IRM Energy Pvt. Ltd. 9,250 31 4

Gandhinagar, Mehsana & Sabarkantha GA Sabarmati Gas Ltd. 1,51,309 725 326

Patan district GA Sabarmati Gas Ltd. 3,629 0 0

Vadodara District

Vadodara Gas Limited (Previously Vadodara Mahanagar Seva Sadan) VMSS

1,21,273 2,538 0

Dadra & Nagar Haveli GA Gujarat Gas Limited 2,676 18 15

Total 20,41,557 18,719 4,897

Haryana Faridabad district Adani Gas Limited 61,468 115 281

Sonipat district Gail Gas Limited 8,252 27 87

Gurugram district Haryana City Gas Distribution Ltd

17,801 133 68

Panipat district Indian Oil-Adani Gas Pvt. Ltd.

1,484 1 5

Gurugram district Indraprastha Gas Limited 6,209 5 1

Rewari district Indraprastha Gas Limited 3,679 0 19

Nuh and Palwal districts Adani Gas Limited 0 0 25

Total 98,893 281 486

Karnataka Bengaluru rural and urban district GA Gail Gas Ltd. 11,076 84 61

Tumkur district GA Megha Engineering &Infrastructures Ltd.

3,676 25 9

Belgaum district GA Megha Engineering &Infrastructures Ltd.

2,108 15 5

Dharwad district Indian Oil-Adani Gas Pvt. Ltd.

0 0 0

Total 16,860 124 75

Kerala Ernakulam district Indian Oil-Adani Gas Pvt. Ltd.

1,032 10 1

Total 1,032 10 1

Madhya Pradesh

Indore GA incl. Ujjian city Aavantika Gas 37,967 77 157

Gwalior GA Aavantika Gas 13,236 36 2

Dewas Gail Gas Ltd. 4,907 20 30

Vijaipur Gail Gas Ltd. 0 0 0

Total 56,110 133 189

Maharashtra Pune City including Pimpri Chinchwad along with adjoining contiguous areas of Hinjewadi,Chakan &Talegaon GA

Maharashtra Natural Gas Limited

1,69,407 302 185



Mumbai, Greater Mumbai, Thane Urban, Mira Bhayender, Navi Mumbai, Ambernath,Bhiwandi,Kalyan, Dombivli, Badlapur, Ulhasnagar, Panvel,Kharghar & Taloja, Raigarh District GA excl area already authorized

Mahanagar Gas Limited 12,83,284 3,754 71

Palghar district and Thane rural GA Gujarat Gas Limited 188 8 3

Pune excluding areas already authorized Mahesh Gas Ltd. 0 0 1

Ratnagiri Unison Enviro Pvt Ltd. 23 0 0

Total 14,52,902 4,064 260

Odisha Khorda district GA GAIL (India) Ltd. 225 0 0

Cuttack district GA GAIL (India) Ltd. 0 0 0

Total 225 0 0

Punjab Fatehgarh Sahib district IRM Energy Pvt. Ltd. 400 1 11

Amritsar GSPL 0 0 0

Total 400 1 11

Rajasthan Kota

Rajasthan State Gas Limited

2,160 11 14

Neemrana & Kukas Rajasthan State Gas Limited

0 1 0

Total 2,160 12 14

Telangana Hyderabad Bhagyanagar Gas Limited 10,579 12 17

Total 10,579 12 17

Tripura Agartala Tripura Natural Gas Company Limited

39,743 415 49

Total 39,743 415 49

Khurja GA Adani Gas Ltd. 11,309 3 139

Kanpur GA Central UP Gas Ltd 39,316 140 55

Bareilly GA Central UP Gas Ltd 17,290 102 15

Meerut Gail Gas Ltd. 8,243 20 31

Firozabad (TTZ) GA Gail Gas Ltd. 916 0 340

Lucknow district Green Gas Ltd 34,917 45 10

Uttar Pradesh Agra Green Gas Ltd 32,442 50 19

Allahabad GA Indian Oil-Adani Gas Pvt. Ltd.

2,778 1 0

Mathura Sanwaria Gas Ltd 4,345 67 36

Moradabad GA SITI Energy Limited 3,847 59 6

Dibiyapur Gail Gas Ltd. 0 0 0

Varanasi district GAIL (India) Ltd. 2,100 8 0

Auraiya,Kanpur Dehat & Etawah districts Torrent Gas Pvt Ltd 0 0 0

Total 1,57,503 495 651

Uttarakhand Udham Singh Nagar district Indian Oil-Adani Gas Pvt. Ltd.

773 3 6

Haridwar district GA HNGPL 220 0 0

Total 993 3 6

West Bengal Kultora, Asansol, Raniganj, Durgapur Great Eastern Energy Corporation Limited

0 0 0

Total 0 0 0

Grand Total 50,43,188 28,046 8,823




Annexure - Company overview

Gujarat State Petronet Limited (GSPL), promoted by Gujarat State Petroleum Corporation Limited - the first Indian company to transport natural gas on open access basis is focused on natural gas transmission and CGD through its subsidiary GGAS. GSPL transports natural gas shipped by traders, and producers as well as RLNG from LNG import terminals located at Dahej and Hazira. GSPL transports gas to consumers across industries, including power, fertilizer, steel, chemical plants and local city gas distribution companies. GSPL could sign Gas Transportation Agreement with companies that sell gas or businesses, which consume the gas.

Exhibit 39: GSPL milestones

Event Date Cumulative length

of gas grid

Date of incorporation 23 December 1998 -

Commenced transporting gas November 2000 -

Hazira Mora pipeline 14

Amboli Dahej pipeline FY02 59 km

Mora-Utran Cairn-Mora and Bhadhut-Paguthan pipelines and GNFC Videocon and Mora Kribhco spur lines. FY03 125

Paguthan-Baroda pipeline FY04 209

Baroda-Ahmedabad-Kalol pipeline the GACL-Petronet pipeline the Mora-Sajod pipeline and the Kalol-Santej pipeline was started FY05 433

Listing on stock exchanges February 2006 -

commissioned the Anand-Rajkot Kalol-Himmatnagar Kalol - Mehasana and Anklav-Dhuvaran pipelines. FY07 -

GTA with Reliance for 11 mmscmd gas from Bharuch to Jamnagar F09 -

Awarded the Letters of Authorisation by Petroleum and Natural Gas Regulatory Board for developing three Cross Country Natural Gas Transmission Pipelines namely: Mallavaram - Bhilwara (1585 Kms) pipeline Mehsana - Bhatinda (1670 Kms) pipeline and Bhatinda-Jammu-Srinagar (740 Kms) pipeline.

July 2011 1874

PNGRB Authorization for GSPL’s HP and LP gas grid FY12/FY13 HP 2239 LP – 57.6

GSPL booked natural gas re-gasification capacity of 1 mn tonne per annum with Petronet LNG Limited (PLL) at its Dahej terminal Gujarat for a period of 20 years starting from 2016 on firm basis.

Jan 2013 -

Commissioned Mehsana – Palanpur Pipeline, Dahej SEZ – I Pipeline, GSFC (Sikka) Spurline and GNFC TDI Dahej Spurline. - 2163

PNGRB granted authorization to GSPL for developing city gas distribution (CGD) network in the Geographical Area of Amritsar District (Punjab)

May 2015 2192

Anjar Bhuj pipeline and Halol Dahod pipeline commissioned March 2016 2348

GSPL hiked its equity stake in Sabarmati Gas Limited (SGL) - engaged in building CGD networks in Gandhinagar, Sabarkantha and Mehsana districts - to 27.47%. SGL

March 2016 -

PNGRB granted authorization to GSPL for city gas distribution (CGD) network in the Geographical Area of Bhatinda District (Punjab). May 2016 -

Commissioned Mandali-Becharaji pipeline and provided natural gas connectivity to automobile majors Honda and Maruti. Bodighodi Ambardi pipeline connected to Gujarat Gas Ltd, and various customer(s) connectivity projects - Sanand GIDC ring network Dahej - PCPIR and Dahej SEZ-II network.

Mar 2017 2454

Picked up 11% stake in Swan LNG Pvt. Ltd. (SLPL) – a company involved in the development of Floating Storage and Regassification Unit (FSRU) based LNG Port with a regassification capacity of 5 MMTPA of LNG at Jafrabad in Amreli District Gujarat.

February 2018 -

GGAS became subsidiary of GSPL after the latter acquired 54.16% stake in the former from GSPL’s parent GSPC . March 2018 2518

Commissioned the following assets: Anjar Mundra Pipeline and 18” Amboli VantevadPipeline and provided natural gas connectivity to variouscustomer(s) (connectivity projects) in Sanand GIDC, Dahej, Ahmedabad, Mundra etc. 5.5 MW (1 Standby +1 Working) Gas Compressor Station at Gana

FY19 2621

Gas is flowing from Hazira / Dahej / Vapi to various industries and CGD networks across various Districts of Gujarat: Surat, Bharuch,Narmada, Baroda, Anand, Ahmedabad, Dahod, Gandhinagar, Sabarkantha, Panchamahal, Patan, Bhavnagar, Mehsana, Banaskantha, Surendranagar, Botad, Rajkot, Morbi, Jamnagar, Navsari, Kutch, Kheda, Valsad, Amreli, Gir & Somnat

As of end FY19 -

Source: Business Standard, Company, Nirmal Bang Institutional Equities Research



Exhibit 40: GSPL CGD network

Round Geographical Area State/ Union Territory Authorization date

4th CGD bidding round Amritsar District Punjab 5-May-15

6th CGD bidding round Bhatinda District Punjab 10-May-16

Source: PNGRB, Nirmal Bang Institutional Equities Research

Exhibit 41: GSPL natural gas pipelines in India

Natural gas pipeline Authorizatio

n date Authorized Entity

Length (km)

Capacity (mmscmd)

States from which pipeline passes

Operational Pipelines

High Pressure Gujarat Gas Grid 27.07.2012 Gujarat State

Petronet Limited 2239 31 Gujarat

Low Pressure Gujarat Gas Grid 19.03.2013 Gujarat State

Petronet Limited 57.6 12 Gujarat

New Pipelines

Mehsana – Bhatinda – 441 Kms completed -rest by Dec 2020

07.07.2011 GSPL India Gasnet

Limited 2052 77.11 Gujarat, Rajasthan, Haryana, Punjab

Bhatinda - Jammu - Srinagar - target Dec 2020 07.07.2011 GSPL India Gasnet

Limited 725 42.42 Punjab, Jammu & Kashmir

Under Construction Pipelines

Mallavaram - Bhopal - Bhilwara via Vijaipur – under review by GSPL East Godavari – Ramagundam section completed- 363 kms

07.07.2011 GSPL India Transco

Limited 2042 76.25

Andhra Pradesh, Telangana, Madhya Pradesh, Rajasthan

Source: PNGRB, Nirmal Bang Institutional Equities Research

Exhibit 42: Promoter shareholding pattern

%

Gujarat State Petroleum Corp Ltd 37.64

Republic of India 10.98

Gujarat Maritime Board 6.58

Source: Bloomberg, Nirmal Bang Institutional Equities Research

Exhibit 43: Key management personnel

Name Designation

Shri M M Srivastava Chairman

Dr. J N Singh Managing Director

Shri Sanjeev Kumar Joint Managing Director


Exhibit 44: Top shareholders

%

Gujarat State Petroleum Corp Ltd 37.64

Republic of India 10.98

Gujarat Maritime Board 6.58

Life Insurance Corp of India 4.14

SBI Funds Management Pvt Ltd 3.88

Franklin Templeton Mutual Fund 2.89

Tata Asset Management Ltd 2.36

Mirae Asset Global Investments Ind 3.01

DSP Investment Managers Pvt Ltd 1.95

Source: Bloomberg, Nirmal Bang Institutional Equities Research



Exhibit 45: Standalone half yearly results

Rs Mn 1HFY19 1HFY20 Ch % FY19

Net Revenues 9,896 11,479 16.0 18,772

COGS 386 1,858 381.6 1,020

GSPL Gross contribution 9,510 9,621 1.2 17,752

Employee Benefits Expense 296 299 1.1 645

Other Expenses 613 930 51.8 1,679

Total Expenses 1,295 3,088 138.5 3,345

EBITDA Total 8,601 8,391 (2.4) 15,427

Depreciation and Amortization Expenses 884 987 11.6 1,800

EBIT 7,717 7,405 (4.0) 13,627

Other Income 438 531 21.0 594

Finance Costs 1,137 917 (19.3) 2,192

PBT 7,018 7,019 0.0 12,029

Current 2,278 1,693 (25.7) 3,819

Deferred 62 (1,284) (2,165.3) 262

total tax -T 2,340 409 (82.5) 4,081

PAT reported-X-T+Y 4,678 6,610 41.3 7,948

EPS 8.29 11.72 41.3 14.09

Margins% 1HFY19 1HFY20 Ch bps FY19

Gross 96.10 83.81 (1,229) 94.57

EBITDA 86.92 73.10 (1,382) 82.18

PAT 47.27 57.58 1,031 42.34

Effective tax rate 33.3 5.8 (2,752) 33.9


Exhibit 46: Standalone quarterly results

Rs Mn 1QFY19 1QFY20 Yoy Ch% 2QFY19 2QFY20 Yoy Ch% FY 19

Revenue 3,912 5,125 30.98 5,983 6,354 6.20 18,772

COGS 215 456 112.67 171 1,402 718.47 1,021

EBITDA 3,438 4,020 16.92 5,163 4,371 (15.33) 16,067

PBT 2,466 3,129 26.91 4,553 3,890 (14.57) 12,028

Current Tax 991 1,004 1.31 1,287 688 (46.53) 3,819

Deferred Tax 30 63 113.33 32 (1,347) (4,251.59) 262

Total Tax 1,021 1,068 4.57 1,319 (659) (149.96) 4,081

PAT Reported 1,445 2,061 42.70 3,233 4,549 40.68 7,947

Margins% 1QFY19 1QFY20 Yoy Ch bps 2QFY19 2QFY20 Yoy Ch bps FY 19

Gross 94.52 91.10 (342) 97.14 77.93 (1,920) 94.56

EBITDA 87.88 78.45 (944) 86.29 68.79 (1,749) 85.59

PAT 36.92 40.22 330 54.04 71.58 1,754 42.33

Effective tax rate 41.41 34.12 (729) 28.98 (16.95) (4,592) 33.93




Exhibit 47: Consolidated quarterly results

Rs Mn 1QFY19 1QFY20 Yoy Ch% 2QFY19 2QFY20 Yoy Ch% FY 19

Revenue 20,912 30,215 44.49 25,004 30,432 21.71 93,451

COGS 13,067 18,921 44.80 15,971 19,901 24.60 57,967

EBITDA 5,959 8,720 46.34 6,801 8,111 19.26 25,402

PBT 4,343 6,730 54.95 4,832 6,114 26.53 17,656

Current Tax 1,525 2,111 38.41 1,397 1,110 (20.53) 5,505

Deferred Tax 174 242 39.40 105 (4,315) (4,225.18) 757

Total Tax 1,699 2,353 38.51 1,502 (3,204) (313.39) 6,262

PAT Reported 2,162 3,318 53.48 3,222 6,962 116.05 9,986

Margins% 1QFY19 1QFY20 Yoy Ch bps 2QFY19 2QFY20 Yoy Ch bps FY 19

Gross 37.51 37.38 (14) 36.13 34.61 (152) 37.97

EBITDA 28.50 28.86 37 27.20 26.65 (55) 27.18

PAT 10.34 10.98 64 12.89 22.88 999 10.69

Effective tax rate 39.12 34.97 (415) 31.08 (52.41) (8,349) 35.47




Annexure – Gujarat Gas Ltd. - Not Rated

GSPL holds 54.17% stake in India’s leading city gas company Gujarat Gas Ltd. GGAS holds 25 CGD licenses spread across 41 districts and six states and one Union territory - around 11% of total CGD licenses and close to 10% total authorized areas issued by PNGRB in India, according to the company. GGAS also holds one transportation pipeline license, The Company’s 23,200km of natural gas pipeline network covers 1,69,500 square km of licensed area that serves more than 1.35mn residential consumers, 3500 industrial units and over 12,300 commercial customers. GGAS also sells CNG to around 650,000 vehicles from 344 CNG stations. The company has an overall sales volume in excess of 9mmscmd, which includes close to 7.5mmscmd of PNG – mainly industrial- and another 1.5mmscmd of CNG (YTD FY20). GGAS reported net revenue of Rs77bn and PAT of Rs 4.33bn for FY19 on volumes of 6.7mmscmd. The company had an EBITDA margin of 12.8%. EPS of Rs6.3/share and RoE of 21.5% in FY19.

Exhibit 48: GGAS - GAs/licensed areas

1. Surat- Bharuch- Ankleshwar

2. Nadiad

3. Navsari

4. Rajkot

5. Surendranagar

6. Jamnagar

7. Bhavnagar

8. Hazira

9. Kutch (West)

10. Valsad

11. Union Territory of Dadra & Nagar Haveli

12. Palghar District and Thane Rural

13. Amreli District

14. Dahej- Vagra Taluka

15. Ahmedabad District (excluding area already authorized)

17. Anand District (excluding area already authorized)

19. Narmada (Rajpipla) District

20. Sirsa, Fatehabad and Mansa (Punjab) Districts

21. Ujjain (Except area already authorized) District, Dewas (Except area already authorized) District and Indore

(Except area already authorized) District

22. Jhabua, Banswara, Ratlam and Dungarpur Districts

23. Ferozepur, Faridkot and Sri Muktsar Sahib Districts

18. Panchmahal District

24. Hoshiarpur and Gurdaspur Districts




NGT ban on coal in Morbi fuels massive 40% growth in 1HFY20 volumes

The company has been enjoying lower growth and, margins compared with IGL and MGL as the product mix has been dominated Industrial PNG, which fetches lower margins vs. CNG.

The opening up of the PNG market in Morbi – an industrial town known for ceramic tile exports – after the NGT banned the use of coal in ceramic cluster at Morbi and Wankaner in Gujarat in March this year. This has led to a massive 40% spurt in GGAS volumes in 1HFY20 YoY.

GGAS YTD performance

We saw GGAS report YoY growth of 42%40% in volumes, 88%/131% in EBITDA growth of and 92%/352% growth in PBT in 1Q and 2Q FY20 based on the mandatory switching to natural gas in Morbi that contributes 5 mmscmd or 55% of GGAS volumes.

In Q2FY20 GGAS reported net revenue of Rs25.2bn – up 28% YoY, EBITDA of Rs3.7bn- up 131% YoY and PAT of Rs5.2bn (including one time write off in deferred tax- Rs2.98bn) vs. Rs410mnn a year ago and Rs2.34bn in 1QFY20. 1HFY20 revenue is up 37% at Rs51.3bn and PAT is up 360% at Rs7.5bn YoY

Exhibit 49: Segment wise volumes- YTD

MMSCM Q1FY19 Q1FY20 Ch YoY % Q2FY19 Q2FY20 Ch YoY %

Industrial 410 644 57 425 663 56

CNG 128 135 5 128 136 6

Domestic PNG 38 45 18 49 50 2

Commercial PNG 9 9 0 11 10 -9

Total 585 833 42 613 859 40


Ramp up in utilization and new units to enhance Morbi volume growth prospects

The company expects further growth from Morbi’s tile units, which still have about 30-40% of unutilized capacity due to the weak domestic and export demand. Further the start up of new units will also support volume growth from Morbi in future. This implies good visibility on sustainable volume growth in a large industrial end use market that has to mandatorily use natural gas.

Management expects CNG/PNG expansion in other areas to support double digit volume growth

The Ahmedabad- based CGD giant is also expanding its CNG footprint by adding 50—60 CNG stations per year over the next 2-3 years. This along with PNG and network expansion is estimated to result in capex worth Rs5.5 – 6bn each year over FY20-22E. The capex will initially be 60% in existing Gas and 40% in new GAs which are virgin markets for CNG and PNG.

Based on these plans and the latent estimated demand, Management expects to double digit volume growth to sustain in the coming years.

The risks include the potential increase in cost of gas, regulatory risk from open access being introduced in some of its GAs once marketing exclusivity is terminated and industrial demand slow down since this segment dominates GGAS product mix at 77%.



Financials –Standalone

Exhibit 50: Income statement


Net Revenue 13,317 18,772 22,322 22,161 22,917

y/y % 29.60 40.96 18.91 (0.72) 3.41

Raw Material Expenses 478 1,021 3,536 1,516 1,569

RM/Sales % 3.6 5.4 15.8 6.8 6.8

Employee cost 432 645 669 702 744

Other expenses 930 1,679 2,051 2,256 2,436

EBITDA 11,478 15,426 16,067 17,687 18,168

y/y % 29.21 34.40 4.16 10.08 2.72

Depreciation 1,750 1,800 1,997 2,078 2,150

EBIT 9,728 13,626 14,070 15,609 16,019

Interest Expense 354 2,192 1,753 1,188 765

Other Income 735 594 694 794 894

PBT (adjusted) 10,108 12,028 13,010 15,215 16,148

Income Tax Expense 3,424 4,081 1,893 3,830 4,064

PAT 6,684 7,947 11,118 11,385 12,083

EPS (Rs) 11.86 14.09 19.71 20.19 21.42

y/y % 34.53 18.86 39.89 2.41 6.13


Exhibit 52: Balance sheet


Total Share Capital 5,638 5,640 5,640 5,640 5,640

Reserves and Surplus 45,012 51,800 61,220 70,569 80,276

Net worth 50,650 57,440 66,860 76,209 85,916

Long Term Borrowings 17,595 12,856 17,253 9,670 6,774

Other long term liab. 299 457 457 457 457

Deferred Tax Liabilities [Net] 4,984 5,226 5,226 5,226 5,226

Provisions 128 189 189 189 189

Trade Payables 185 238 367 364 377

Other curr. liab 15,634 13,066 2,262 2,262 2,262

Short term provisions 10 27 27 26 27

Total Capital And Liabilities 89,485 89,500 92,641 94,404 101,228

Total Asset plus WIP 40,101 40,269 39,872 39,394 38,844

Non-Current Investments 41,814 42,772 45,272 48,952 48,952

Long term loans & advances 1,196 1,079 1,079 1,079 1,079

Other Non-Current Assets 67 144 144 144 144

Inventories 1,235 1,279 1,468 1,457 1,507

Trade Receivables 1,235 2,081 1,835 1,821 1,884

Cash & Cash Equivalents 225 700 1,796 381 7,643

Bank bal other than cash 3,420 883 883 883 883

Short term loans & advances 149 236 236 236 236

Other Current Assets 43 57 57 57 57

Total Assets 89,485 89,500 92,641 94,404 101,228


Exhibit 51: Cash flow


PBT 10,108 12,028 13,010 15,215 16,148

Add depreciation 1,750 1,800 1,997 2,078 2,150

Other expenses (318) 1,650 1,060 394 (129)

Change in W/C-inc/(dec) (508) 955 (186) (21) 99

Income tax 3,105 3,639 1,893 3,830 4,064

Cashflow from Operations (A) 8,944 10,882 14,360 13,879 14,005

Capex (2,895) (2,165) (1,600) (1,600) (1,600)

Investments (28,840) 2,085 (1,806) (2,886) 894

Free Cash Flow (22,792) 10,803 10,954 9,392 13,299

Cashflow from Investing (B) (31,735) (80) (3,407) (4,486) (706)

Increase/(Decrease) in borrowings

24,239 (6,912) (6,407) (7,583) (2,896)

Other Liab. (1,374) (3,416) (3,451) (3,225) (3,141)

Cashflow from Financing (C) 22,865 (10,328) (9,858) (10,808) (6,037)

Ch in Cash and Cash equiv 73 475 1,096 (1,415) 7,262

opg cash 152 225 700 1,796 381

closing cash 225 700 1,796 381 7,643


Exhibit 53: Key ratios


Profitability & return ratios

EBITDA margin (%) 86.2 82.2 72.0 79.8 79.3

EBIT margin (%) 73.0 72.6 63.0 70.4 69.9

Net profit margin (%) 50.2 42.3 49.8 51.4 52.7

RoE (%) 14.0 14.7 17.9 15.9 14.1

Post-tax RoCE (%) 10.0 12.0 14.5 12.9 12.6

RoIC (%) 12.7 13.7 15.6 13.7 13.8

Working capital ratios

Receivables (days) 33.2 32.2 30.0 30.0 30.0

Inventory (days) 32 24 24 24 24

Payables (days) 5 4 4 6 6

Cash conversion cycle 60.4 52.2 49.9 48.0 48.0

Leverage ratios

Net debt (Rsmn) 28,432 23,996 16,493 10,326 167

Net Debt (cash)/Equity (X) 0.56 0.42 0.25 0.14 0.00

Net Debt/EBITDA 2.48 1.56 1.03 0.58 0.01

Valuation ratios

EV/sales (x) 10.99 7.80 6.56 6.61 6.39

EV/EBITDA (x) 12.75 9.49 9.11 8.28 8.06

EV/FCF -6.42 13.55 13.36 15.58 11.01

P/E (x) 18.30 15.40 11.01 10.75 10.13

P/BV (x) 2.42 2.13 1.83 1.61 1.42

FCF Yield (%) -13.04 6.34 6.73 5.99 9.07

Dividend Yield (%) 0.69 0.81 1.15 1.38 1.61

Per share ratios

EPS 11.86 14.09 19.71 20.19 21.42

Cash EPS 14.96 17.28 23.25 23.87 25.24

BVPS 89.83 101.85 118.55 135.12 152.33

DPS 1.50 1.75 2.50 3.00 3.50




DISCLOSURES

This Report is published by Nirmal Bang Equities Private Limited (hereinafter referred to as “NBEPL”) for private circulation. NBEPL is a registered Research Analyst under SEBI (Research Analyst) Regulations, 2014 having Registration no. INH000001436. NBEPL is also a registered Stock Broker with National Stock Exchange of India Limited and BSE Limited in cash and derivatives segments. NBEPL has other business divisions with independent research teams separated by Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets. NBEPL or its associates have not been debarred / suspended by SEBI or any other regulatory authority for accessing / dealing in securities Market. NBEPL, its associates or analyst or his relatives do not hold any financial interest in the subject company. NBEPL or its associates or Analyst do not have any conflict or material conflict of interest at the time of publication of the research report with the subject company. NBEPL or its associates or Analyst or his relatives do not hold beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of this research report. NBEPL or its associates / analyst has not received any compensation / managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. NBEPL or its associates have not received any compensation or other benefits from the company covered by Analyst or third party in connection with the research report. Analyst has not served as an officer, director or employee of Subject Company and NBEPL / analyst has not been engaged in market making activity of the subject company. Analyst Certification: I, Amit Agarwal, research analyst the author of this report, hereby certify that the views expressed in this research report accurately reflects my personal views about the subject securities, issuers, products, sectors or industries. It is also certified that no part of the compensation of the analyst was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst is principally responsible for the preparation of this research report and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations.



Disclaimer

Stock Ratings Absolute Returns

BUY > 15%

ACCUMULATE -5% to15%

SELL < -5%

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Before making an investment decision on the basis of this research, the reader needs to consider, with or without the assistance of an adviser, whether the advice is appropriate in light of their particular investment needs, objectives and financial circumstances. There are risks involved in securities trading. The price of securities can and does fluctuate, and an individual security may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international stock market or economic conditions, which may adversely affect the value of the investment. Opinions expressed are subject to change without any notice. Neither the company nor the director or the employees of NBEPL accept any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. Here it may be noted that neither NBEPL, nor its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profit that may arise from or in connection with the use of the information contained in this report.

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Dealing

Ravi Jagtiani Dealing Desk [email protected] +91 22 6273 8230, +91 22 6636 8833

Pradeep Kasat Dealing Desk [email protected] +91 22 6273 8100/8101, +91 22 6636 8831

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Nirmal Bang Equities Pvt. Ltd.

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