Petronet LNG PLNG.NS PLNG IN

EQUITY: OIL & GAS/CHEMICALS

Bluer skies ahead

Sharp growth coming into focus as RasGas take-or-pay concerns dissipate; reiterate Buy Action: Stronger conviction on expected doubling/trebling of earnings in 3/5 years, high conviction Buy despite recent run; raise TP to INR300

Global Markets Research 26 November 2015

Rating Remains BuyTarget Price Increased from 230 INR 300

Closing price We continue to highlight Petronet LNG as a compelling growth story. While the recent run has been strong (+38% in 3M vs Sensex flat), the recent positive newsflow makes the story even more compelling.

24 November 2015 INR 233

Potential upside +28.5%

Market concerns on the high price and take-or-pay provisions in the RasGas

contract have dissipated (see RasGas contract modification likely soon).

LNG imports remain strong, driven by benign LNG prices / high demand. Dahej’s 120% utilisation in 2Q was an all-time high, and October volumes were even higher. The LT volume outlook also looks better with the recent 1mmtpa 20-year tie-up with Torrent Power (total LT tie-up for 15.75mmt, vs 15mmt design capacity post-expansion).

Also, work on Kochi’s downstream pipeline has resumed after a long hiatus.

R-Gas modification to reduce price, boost demand, and reduce costs We expect the import price under the R-Gas contract to decline by a sharp 45% from the current USD12.5/mmbtu to ~USD7/mmbtu, and offtake to return to normal levels. PLNG stands to benefit, given: 1) no under-recovery on shipping; 2) lower internal consumption costs; and 3) possibility of even higher utilisation as ship scheduling can get better with firm volumes.

Valuation: Raise earnings by 6-35% and TP by 30% to Street high INR300 We now assume R-Gas contract modification from 1 Jan 2016 (price linked to 3M avg Brent, and no volume deferral). We see sharp earnings growth of 35% for FY16F (strong volumes, and no tariff cut on e-Auction volume) and we lift FY17-18F earnings by 6-8% to reflect higher volumes and lower costs due to a reduced R-Gas price. We roll forward our DCF valuation to Sep-17 (from Mar-17), deriving a TP of INR300. While this is the Street high, we see further upside if we assume 5% tariff escalation for the entire contract duration (vs five years), which would lift our TP to INR380, implying 65% upside.

Year-end 31 Mar

Anchor themes

PLNG remains a key stock pick to play the theme of long-term LNG imports.

Nomura vs consensus

Our FY16F EPS forecast is 12% higher than Bloomberg consensus. Our TP is 46% ahead of consensus, as we are more positve on PLNG's long-term outlook.

Research analysts

India Oil & Gas/Chemicals

Anil Sharma - NFASL anil.sharma.1@nomura.com +91 22 4037 4338

Ravi Adukia, CFA - NFASL ravikumar.adukia@nomura.com +91 22 4037 4232

FY15 FY16F FY17F FY18F

Currency (INR) Actual Old New Old New Old New

Revenue (mn) 395,010 323,183 302,813 330,048 307,009 379,030

Reported net profit (mn) 8,825 7,310 9,879 10,021 10,792 16,251

Normalised net profit (mn) 7,302 7,310 9,879 10,021 10,792 16,251

FD normalised EPS 9.74 9.75 13.17 13.36 14.39 21.67

FD norm. EPS growth (%) 2.6 0.1 35.3 37.1 9.2 50.6

FD normalised P/E (x) 24.0 N/A 17.7 N/A 16.2 N/A 10.8

EV/EBITDA (x) 13.8 N/A 11.1 N/A 10.6 N/A 7.5

Price/book (x) 3.1 N/A 2.7 N/A 2.4 N/A 2.0

Dividend yield (%) 0.9 N/A 0.9 N/A 0.9 N/A 1.1

ROE (%) 16.5 12.3 16.2 15.1 15.5 20.1

Net debt/equity (%) 40.3 34.3 32.2 41.6 38.1 36.5

Source: Company data, Nomura estimates

Key company data: See next page for company data and detailed price/index chart.

See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.

Nomura | Petronet LNG 26 November 2015

2

Key data on Petronet LNG Relative performance chart

Source: Thomson Reuters, Nomura research

Notes:

Performance (%) 1M 3M 12MAbsolute (INR) 20.4 37.6 21.3 M cap (USDmn) 2,636.3Absolute (USD) 17.7 38.2 13.0 Free float (%) 50.0Rel to MSCI India 26.2 38.5 28.7 3-mth ADT (USDmn) 3.6 Income statement (INRmn) Year-end 31 Mar FY14 FY15 FY16F FY17F FY18FRevenue 377,476 395,010 302,813 307,009 379,030Cost of goods sold -358,495 -376,109 -280,046 -282,218 -343,857Gross profit 18,981 18,901 22,767 24,791 35,172SG&A -7,077 -7,665 -8,248 -9,143 -11,878Employee share expense 0 0 0 0 0Operating profit 11,904 11,236 14,519 15,647 23,294EBITDA 14,985 14,390 17,727 19,210 27,741Depreciation -3,081 -3,154 -3,208 -3,563 -4,447Amortisation 0 0 0 0 0EBIT 11,904 11,236 14,519 15,647 23,294Net interest expense -2,196 -2,935 -2,426 -2,336 -2,539Associates & JCEs

Other income 838 1,548 1,440 1,472 1,506Earnings before tax 10,545 9,849 13,533 14,783 22,261Income tax -3,426 -2,547 -3,654 -3,992 -6,011Net profit after tax 7,119 7,302 9,879 10,792 16,251Minority interests 0 0 0 0 0Other items 0 0 0 0 0Preferred dividends 0 0 0 0 0Normalised NPAT 7,119 7,302 9,879 10,792 16,251Extraordinary items 0 1,523 0 0 0Reported NPAT 7,119 8,825 9,879 10,792 16,251Dividends -1,755 -1,800 -1,800 -1,800 -2,250Transfer to reserves 5,364 7,025 8,079 8,992 14,001Valuations and ratios

Reported P/E (x) 24.6 19.8 17.7 16.2 10.8Normalised P/E (x) 24.6 24.0 17.7 16.2 10.8FD normalised P/E (x) 24.6 24.0 17.7 16.2 10.8Dividend yield (%) 0.9 0.9 0.9 0.9 1.1Price/cashflow (x) 18.2 21.1 8.4 9.0 8.5Price/book (x) 3.5 3.1 2.7 2.4 2.0EV/EBITDA (x) 13.0 13.8 11.1 10.6 7.5EV/EBIT (x) 16.4 17.6 13.5 13.0 8.9Gross margin (%) 5.0 4.8 7.5 8.1 9.3EBITDA margin (%) 4.0 3.6 5.9 6.3 7.3EBIT margin (%) 3.2 2.8 4.8 5.1 6.1Net margin (%) 1.9 2.2 3.3 3.5 4.3Effective tax rate (%) 32.5 25.9 27.0 27.0 27.0Dividend payout (%) 24.7 20.4 18.2 16.7 13.8ROE (%) 15.1 16.5 16.2 15.5 20.1ROA (pretax %) 11.6 10.5 12.7 11.7 14.8Growth (%)

Revenue 20.0 4.6 -23.3 1.4 23.5EBITDA -22.7 -4.0 23.2 8.4 44.4Normalised EPS -38.1 2.6 35.3 9.2 50.6Normalised FDEPS -38.1 2.6 35.3 9.2 50.6Source: Company data, Nomura estimates

Cashflow statement (INRmn) Year-end 31 Mar FY14 FY15 FY16F FY17F FY18FEBITDA 14,985 14,390 17,727 19,210 27,741Change in working capital -6,762 -8,163 5,426 1,257 -1,185Other operating cashflow 1,413 2,070 -2,314 -993 -6,036Cashflow from operations 9,636 8,298 20,839 19,474 20,520Capital expenditure -8,761 -8,279 -14,838 -23,289 -20,351Free cashflow 875 19 6,001 -3,815 170Reduction in investments 0 499 -499 0 0Net acquisitions 0 0 0 0 0Dec in other LT assets -1,347 -4,219 -1,348 -809 -890Inc in other LT liabilities 4,624 7,745 1,947 3,035 58Adjustments -2,544 -2,400 100 -1,526 1,531CF after investing acts 1,608 1,644 6,203 -3,115 870Cash dividends -2,195 -1,755 -1,800 -1,800 -2,250Equity issue 0 0 0 0 0Debt issue 2,050 -6,128 -600 5,250 6,500Convertible debt issue Others -1,821 -2,447 -2,426 -2,336 -2,539CF from financial acts -1,966 -10,330 -4,826 1,114 1,711Net cashflow -358 -8,686 1,376 -2,001 2,581Beginning cash 12,685 12,327 3,641 5,017 3,016Ending cash 12,327 3,641 5,017 3,016 5,597Ending net debt 20,342 22,900 20,924 28,175 32,094 Balance sheet (INRmn) As at 31 Mar FY14 FY15 FY16F FY17F FY18FCash & equivalents 12,327 3,641 5,017 3,016 5,597Marketable securities 499 499 499 499 499Accounts receivable 20,157 13,428 14,776 17,754 21,505Inventories 9,557 8,826 7,388 8,623 10,445Other current assets 1,717 758 834 917 1,009Total current assets 44,257 27,152 28,515 30,809 39,055LT investments 900 401 900 900 900Fixed assets 71,450 76,895 88,524 108,251 124,154Goodwill 0 0 0 0 0Other intangible assets 0 0 0 0 0Other LT assets 2,520 6,739 8,087 8,895 9,785Total assets 119,127 111,187 126,025 148,855 173,895Short-term debt 6,192 2,803 2,803 2,803 2,803Accounts payable 25,338 9,553 14,776 20,121 24,373Other current liabilities 2,691 1,893 2,083 2,291 2,520Total current liabilities 34,220 14,250 19,662 25,215 29,696Long-term debt 26,477 23,738 23,138 28,388 34,888Convertible debt 0 0 0 0 0Other LT liabilities 8,568 16,313 18,260 21,295 21,353Total liabilities 69,266 54,301 61,060 74,898 85,937Minority interest 0 0 0 0 0Preferred stock 0 0 0 0 0Common stock 7,500 7,500 7,500 7,500 7,500Retained earnings 40,657 46,898 54,977 63,969 77,970Proposed dividends 0 0 0 0 0Other equity and reserves 1,705 2,488 2,488 2,488 2,488Total shareholders' equity 49,861 56,886 64,965 73,957 87,958Total equity & liabilities 119,127 111,187 126,025 148,855 173,895

Liquidity (x)Current ratio 1.29 1.91 1.45 1.22 1.32Interest cover 5.4 3.8 6.0 6.7 9.2LeverageNet debt/EBITDA (x) 1.36 1.59 1.18 1.47 1.16Net debt/equity (%) 40.8 40.3 32.2 38.1 36.5

Per shareReported EPS (INR) 9.49 11.77 13.17 14.39 21.67Norm EPS (INR) 9.49 9.74 13.17 14.39 21.67FD norm EPS (INR) 9.49 9.74 13.17 14.39 21.67BVPS (INR) 66.48 75.85 86.62 98.61 117.28DPS (INR) 2.00 2.00 2.00 2.00 2.50Activity (days)Days receivable 17.9 15.5 17.0 19.3 18.9Days inventory 10.1 8.9 10.6 10.4 10.1Days payable 28.1 16.9 15.9 22.6 23.6Cash cycle 0.0 7.5 11.7 7.1 5.4Source: Company data, Nomura estimates

Nomura | Petronet LNG 26 November 2015

3

Sky is getting bluer In our 7 May 2015 note (Long-term gains outweigh short-term pain), we had highlighted that concerns over high long-term RasGas prices and the likelihood of take-or-pay provisions were overshadowing the anticipated sharp earnings growth.

• We had expected earnings to double/treble in 3/5 years.

• We also had expected the RasGas contract to be renegotiated with no ‘take-or-pay’ provisions applied.

With modification of the RasGas contract now more likely, these key concerns have mostly dissipated.

Business outlook also much brighter • Despite much lower imports of long-term R-Gas (32% volume deferral this year), the

LNG import volumes have been very strong, driven by benign spot LNG prices and strong demand, particularly from e-Auction power. Dahej terminal utilisation was very strong at 120% in 2Q, and PPAC data indicate that LNG import volumes further improved in October (Fig. 3-7).

• With Petronet signing a new 20-year (starting 2017) 1mmt long-term contract with Torrent Power, the outlook on longer-term volume is also better. We note that compared to expanded design capacity of 15mmt by end-2016, PLNG has contracted capacity of 15.75mmt, implying that the utilisation levels will remain very high. Also, with strong demand, we think the work on further expansion of the Dahej terminal to 17.5mmtpa will likely begin soon. (please see Figure 8 and 9 for our key Dahej volume assumption and trends).

• Earlier concerns on Petronet LNG taking a 50% tariff cut on e-Auction power volumes have also vanished as the company has not taken any tariff cut on these volumes. We have long highlighted Petronet’s nearly “too-good-to-believe” clause, where it passed all commodity price risks and gets 5% annual escalation in regas tariffs. The company has been able to increase the re-gas rate by 5% over the past 10 years, from INR23.7/mmbtu in 2004 to the current INR38.6, an increase of nearly 71%. Importantly, all new LT contracts also provide for similar 5% annual tariff increase for entire contract duration. In our earnings projection and DCF valuation, conservatively we assume a tariff increase only for 5 years, but see low risk of this annual escalation stopping.

• Also, there are early signs at Kochi that work has resumed on the downstream pipeline. The current focus is on the 508km Kochi- Mangalore section. Industry newswire Petrowatch has reported that GAIL is in the process of awarding the fresh tender for this section by mid-December, with a 12-month deadline to complete the work. Also, the Kerala government has been very supportive and now work is happening smoothly. Recently, GAIL was able to lay a section of previously welded pipeline that could not be laid earlier (due to protest by locals).

While PLNG’s stock price has seen a sharp run recently (+38% in 3M vs Sensex flat) and is already factoring in some of the above positives, we believe it remains a compelling story.

We are now even more confident on earnings doubling/trebling in 3 /5 years • Driven by much stronger volumes and earnings in 1H, continued strong volumes, no

tariff cut on e-Auction volumes, and relief due to RasGas contract modification, our FY16F earnings move up by a sharp 35%.

• Our FY17-18F earnings also increase by 6-8% on higher volumes, lower costs due to R-Gas contract modification, and no tariff cut on e-Auction volumes.

• We expect earnings growth to be sharp at 35% in FY16F, 9% in FY17F, and a strong 51% in FY18F.

• From reported earnings of INR9.74, we expect earnings to more than double between FY15-18F to INR21.7, with a CAGR of 31%.

• Similarly, between FY15-18F, we expect earnings to more than treble to INR30.6, with a CAGR of 26%.

With good demand for e-Auction power, the outlook on volume growth has significantly improved recently

Long-term volume outlook remains very good

Petronet LNG has a “too-good-to-believe” tariff escalation clause, and low regulatory concerns

There are sign of revival of work on Kochi terminal downstream pipeline

We expect very strong earnings growth over next 3-5 years

Our TP of INR300 is the highest on the Street, and we see even further upsides

Nomura | Petronet LNG 26 November 2015

4

• Our DCF-based TP moves up to INR300/share (from INR230/share) as we roll forward our valuation to Sep-17 (earlier Mar-17), implying 28% upside.

• While our TP for PLNG is the highest on the Street, we think our assumptions are conservative and there remains upside. For example, as we mention above, we currently assume 5% annual re-gas tariff increase only for the next five years even as off-take agreements provide for tariff escalation for the entire life of the contracts. If we assume 5% tariff escalation for the entire contract duration (vs 5 years), our DCF value rises to INR380, implying 65% upside.

R-Gas modification to reduce price, boost demand, and reduce costs

• Under the revised R-Gas contract, LT LNG prices are expected to be linked to the 3M average Brent. We expect revised contract terms to be applicable from 1 Jan 2016. On our estimate, on revision, the DES (delivered ex-ship) price under the R-Gas contract will decline by nearly 45% from the current USD12.5/mmbtu to ~USD7/mmbtu. (Figure 1 & 2)

• Due to the sharp difference in the LT R-Gas price and spot LNG prices, the off-take of R-Gas has dropped sharply this year. Compared to full off-take since the start of the contract in 2004, off-take in 2015 has been nearly 32% lower. With sharp price decline, we think that the offtake will return to normal levels from 2016 and onward.

• For PLNG, we expect tangible benefits, given: 1) no under-recovery on shipping costs (INR400mn in 2Q), 2) lower internal consumption costs (due to lower LNG prices), and 3) possibility of even higher utilisation (120% utilisation in 2Q with 32% lower LT R-Gas volumes) as ship scheduling can get better with firm LNG volumes

Fig. 1: Under revised terms, we expect R-Gas DES price to decline sharply from USD12.5 to USD7/mmbtu

Source: Nomura estimates

Fig. 2: R-Gas LNG price vs alternate fuels (FOB prices)

Source: Bloomberg, Reuters, Nomura estimates

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We expect DES price under RasGas contract to decline by sharp 45% from 1 Jan 2016

Compared to alternate liquid fuels and spot LNG, RasGas has become the most expensive over past 1 year, from being amongst the cheapest

Post R-Gas contract modification, LT gas will likely again become very attractively priced relative to liquid fuels and spot LNG

Nomura | Petronet LNG 26 November 2015

5

Fig. 3: India’s LNG imports trend Q-Q, LNG imports up 50% in 1Q, 11% in 2Q, and 4% in October over 2Q

Source: PPAC, Nomura research

Fig. 4: India’s LNG sales trend Q-Q, LNG sales up 63% in 1Q, 1% in 2Q, and 18% in October over 2Q

Source: PPAC, Nomura research

Fig. 5: Increase in gas based power generation after start of e-auction of spot LNG

Source: Central electricity authority, Nomura research

Fig. 6: PLNG sales volumes trend Despite large deferral of LT LNG volumes, volumes have moved up sharply in 1H

Source: Company data, Nomura research

Fig. 7: PLNG’s Dahej utilisation trend Dahej utilisation of 120% in 2Q was all-time high. With strong e-Auction power demand, and R-Gas contract modification, we think utilisation levels will remain high

Source: Company data, Nomura research

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Demand from e-Auction for power has been a key driver for demand growth recently

As Dabhol power plant starts this week, the e-Auction power demand should pick up

Also, with decline in R-Gas price, we expect power sector demand for LT LNG also to return soon.

Nomura | Petronet LNG 26 November 2015

6

Fig. 8: Dahej terminal sales volume assumptions MMT FY11 FY12 FY13 FY14 FY15 FY16F FY17F FY18F FY19F FY20F

Capacity 10.0 10.0 10.0 10.0 10.0 10.0 11.3 15.0 15.0 17.5

Volumes 8.6 10.8 10.3 9.6 10.2 10.6 11.0 14.7 15.5 16.0

- Long term 7.5 7.3 7.4 7.3 6.8 5.5 7.4 7.4 7.4 7.4

- Re-gas services 0.6 1.4 0.9 1.0 2.1 3.5 2.4 6.1 6.9 7.2

- Short term / Spot 0.6 2.0 2.0 1.2 1.4 1.6 1.2 1.2 1.2 1.4

Capacity utilisation 86% 108% 103% 96% 102% 106% 98% 98% 103% 91%

Source: Company data, Nomura estimates

Fig. 9: Dahej volumes likely to record 11% CAGR between FY16-20F Compared to volume CAGR of negative 0.4% over last 4 years, we estimate CAGR of 11% over next 4 years

Source: Company data, Nomura estimates

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Nomura | Petronet LNG 26 November 2015

7

Earnings estimate revision We update our earnings model for annual report FY15 and incorporate 1HFY16 numbers.

• Driven by much stronger volumes and earnings in 1H, continued strong volumes, no tariff cut on e-Auction volumes, and relief due to RasGas contract modification, our FY16F earnings move up by a sharp 35%.

• Our FY17-18F earnings also increase by 6-8% on higher volumes, lower costs due to R-Gas contract modification, and no tariff cut on e-Auction volumes.

• We expect earnings growth to be sharp 35% in FY16F, 9% in FY17F, and a strong 51% in FY18F. (Figure 12)

• From reported earnings of INR9.74, we expect earnings to more than double between FY15-18F to INR21.7, with CAGR of 31%.

• Similarly, between FY15-18F, we expect earnings to more than treble to INR30.6 with CAGR of 26%. (Figure 11)

• We highlight that our FY16F EPS is c.12% ahead of Street estimates and we expect the Street to upgrade its estimates. Our FY17F EPS estimate is in line with consensus.

Fig. 10: Key assumptions

FY11 FY12 FY13 FY14 FY15 FY16F FY17F FY18F FY19F FY20F

Volumes (MMT)

Dahej 8.6 10.8 10.3 9.6 10.2 10.6 11.0 14.7 15.5 16.0

Kochi - - - 0.1 0.1 0.3 0.4 0.8 1.5 2.0

Total 8.6 10.8 10.3 9.7 10.3 10.8 11.4 15.5 17.0 18.0

Re-gas tariff (INR/mmbtu)

Dahej 32.2 33.8 35.5 37.2 39.1 41.0 42.9 44.3 46.5 48.1

Kochi - - - 63.0 65.9 69.2 72.7 76.3 80.1 83.1

Marketing

Volumes (MMT) 0.6 2.0 2.0 1.2 1.4 1.6 1.2 1.2 1.2 1.4

Margins (INR/mmbtu) 42.3 46.6 66.8 55.4 31.6 30.0 30.0 30.0 30.0 30.0

Source: Company data, Nomura estimates

Fig. 11: We estimate a 26% EPS CAGR over the next 5 years

Source: Company data, Nomura estimates

Fig. 12: Expect a period of sharp earnings growth beginning FY16F

Source: Company data, Nomura estimates

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Nomura | Petronet LNG 26 November 2015

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Fig. 13: Earnings sensitivity to key variables

Source: Nomura estimates

FY16F FY17F

Base EPS 13.2 14.4EPS change

LT LNG volumeBase case (mmtpa) 5.7 7.5+ Increase of 1.0MT 1.4 10.5% 1.5 10.7%

Volume marekted by PLNGBase case (mmt) 1.6 1.2+ Increase of 0.5 mmt 1.3 9.9% 1.4 9.7%

Regas ChargesBase case (INR/mmbtu) 41.0 43.1-Cut by 5% -0.9 -6.9% -0.8 -5.9%Marketing Margins (INR/mmbtu)Base case (INR/mmbtu) 30.0 30.0+ Increase of INR 5 0.3 2.5% 0.2 1.7%

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High conviction Buy with a TP of INR300 We continue to use a discounted cash flow (DCF) methodology to value Petronet LNG. We assume a WACC of 10.8% (11.1%) and terminal growth of 1% (unchanged). Cash flows are discounted back to Sep-17 (Mar-17 earlier).

• Our DCF-based TP moves up to INR300/share (from INR230/share) on earnings increase and roll-forward of valuations to Sep-17 (earlier Mar-17), implying 28% upside.

• While our TP for PLNG is the highest on the Street, we think our assumptions are conservative and there remains upside. For example, as we mention above, we currently assume 5% annual re-gas tariff increase only for the next five years even as off-take agreements provide for tariff escalation for the entire life of the contracts. If we assume 5% tariff escalation for the entire contract duration (vs 5 years), our DCF value rises to INR380, implying 65% upside.

PLNG remains a key play on India’s rising LNG import story, in our view. We maintain our Buy rating.

Fig. 14: PLNG – We raise our TP to INR300

Source: Nomura estimates

Fig. 15: 1-year forward P/E multiple band chart

Source: Bloomberg, Nomura estimates

Fig. 16: 1-year forward P/B multiple band chart

Source: Bloomberg, Nomura estimates

Valuation Sep-17

Terminal Grow th rate 1%WACC 10.8%

Valuation (INRmn)

Discounted FCFF 153,587 Terminal cash f low 108,482

Enterprise Valuation 262,070 Net Debt (FY16-17avg) 34,140

Implied Mcap 227,930 Value per share (INR) 304

Price Target (INR) 300

FY14 FY15 FY16F FY17F FY18F FY19F FY20F FY21F FY22F FY23F FY24F FY25F FY26F FY27FLNG Volumes (MMT)

- Dahej 9.6 10.2 10.6 11.0 14.7 15.5 16.0 16.5 16.5 16.5 16.5 16.5 16.5 16.5 - Kochi 0.1 0.1 0.3 0.4 0.8 1.5 2.0 2.5 2.5 2.5 2.5 2.5 2.5 2.5

Re-gas tarif f (INR/mmbtu)- Dahej 37.2 39.1 41.0 43.1 45.3 47.5 49.9 52.4 52.4 52.4 52.4 52.4 52.4 52.4 - Kochi 63.0 65.9 69.2 72.7 76.3 80.1 83.1 87.2 87.2 87.2 87.2 87.2 87.2 87.2

EBIT 11,880 11,253 14,519 15,647 23,294 28,019 31,274 35,062 34,882 34,702 34,522 34,977 34,797 34,617 FCFF 3,307 404 16,952 20,562 24,158 27,179 27,224 27,269 27,314 27,835 27,880 27,925

Discounted FCFF - 404 15,298 16,747 17,756 18,029 16,297 14,732 13,317 12,247 11,071 10,007

50

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0O

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(INR/share)

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-12

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2

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-12

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-13

Oct

-13

Mar

-14

Au

g-14

Jan

-15

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-15

Nov

-15

2.5x

INR/share

1.5x

3.5x

2.0x

3.0x

Nomura | Petronet LNG 26 November 2015

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Appendix A-1

Analyst Certification

We, Anil Sharma and Ravikumar Adukia, hereby certify (1) that the views expressed in this Research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.

Issuer Specific Regulatory Disclosures The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries, and may refer to one or more Nomura Group companies.

Materially mentioned issuers Issuer Ticker Price Price date Stock rating Sector rating Disclosures Petronet LNG PLNG IN INR 233 24-Nov-2015 Buy N/A

Petronet LNG (PLNG IN) INR 233 (24-Nov-2015) Rating and target price chart (three year history)

Buy (Sector rating: N/A)

Date Rating Target price Closing price 06-Aug-14 230.00 167.20 01-May-14 170.00 144.80 01-Feb-14 150.00 110.00 21-Oct-13 165.00 124.20 31-Jul-13 180.00 115.75 01-May-13 200.00 139.55 14-Jan-13 225.00 164.90

For explanation of ratings refer to the stock rating keys located after chart(s)

Valuation Methodology We use a DCF methodology to value Petronet LNG (PLNG). Based on a WACC of 10.8% and terminal growth of 1%, our DCF-based target price is INR300. Cash flows are discounted back to Sep-17. The benchmark index for this stock is the MSCI India. Risks that may impede the achievement of the target price Key downside risks include 1) lower-than-expected spot volumes ; 2) delays in ramp-up of Dahej capacity; 3) the Dahej offtake agreements providing for 5% annual rises in the re-gasification charges (conservatively, we assume a 5% tariff hike only for five years; lower than our assumed tariff increase would be a negative); 4) take-or-pay liability under RasGas contract; and 5) a slower ramp-up at Kochi.

Important Disclosures Online availability of research and conflict-of-interest disclosures Nomura research is available on www.nomuranow.com/research, Bloomberg, Capital IQ, Factset, MarkitHub, Reuters and ThomsonOne. Important disclosures may be read at http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx or requested from Nomura Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, please email grpsupport@nomura.com for help. The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by Investment Banking activities. Unless otherwise noted, the non-US analysts listed at the front of this report are

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Benchmarks are as follows: United States/Europe/Asia ex-Japan: please see valuation methodologies for explanations of relevant benchmarks for stocks, which can be accessed at: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology; Japan: Russell/Nomura Large Cap. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Sectors that are labelled as 'Not rated' or shown as 'N/A' are not assigned ratings. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia. Japan/Asia ex-Japan: Sector ratings are not assigned. Explanation of Nomura's equity research rating system in Japan and Asia ex-Japan prior to 21 October 2013 STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price, subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A 'Reduce' recommendation indicates that potential downside is 5% or more. 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