Presented by - Sanjay Kumar Sharma Indraprasth Gas Limited (IGL) Profitable Monopoly with pricing freedom in a growing market Note : Slides prepared only to explain business model of IGL and It is not an investment recommendation Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Snapshot (10 Yr) Sales Growth (CAGR) 22.3 % NP Growth (CAGR) 13.05 % Gas Quantity Sales Growth (CAGR) 14.64 % Book Value Growth (CAGR) 23% ROE (Average) 24.13% Returns (CAGR) 24% Gross Margin (Average) 45% Net profit Margin (Average) 15% Source : Screener , Annual reports Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Can this company maintain its Grow momentum? Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma Source :BP vision 2035 Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma Growth Drivers CNG Less polluting & convenient Supply constraint market Underpenetrated markets - headroom to grow India- 5.5%, Delhi-30%, Pakistan-34%. Government initiatives & Judicial encouragement Conversions of Existing vehicles New vehicles/2W CNG latest initiative Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Growth Drivers Customer Cost Advantage Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma Growth Drivers PNG Supply constraint market Cost & Convenience advantage over LPG Under penetration ( residential) All India 1.2 %, Delhi - 17% , China – 34 %,Beijing- 70% Higher fractions (C3 & C4) used in LPG add more value when used as feedstock in petrochemical Government push due to lower carbon footprint PNG (Commercial &Industrial) sector also has huge potential due to cost advantage Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Growth Drivers– New Business Bidding for New cities – Government Targets 150 new cities for bidding Networks being planned in all the smart cities Have taken stake in CGD Companies operating in new markets (MNGL-Pune & Central UP- Kanpur & others) Got Rewari authorisation recently Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Demand potential of Gas- Highest Expected Growth for CGD Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Will the growth be profitable ? Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma Allocation Priority CGD has been allocated highest priority in the domestic allocation of gas followed by other sectors. Domestic Gas is being allocated to CNG PNG (Domestic) Imported LNG being used for PNG (Commercial & Industrial) Allocation quantity for CNG & PNG (Domestic) has been increased to 100% from earlier 80%. Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Segmental Profitability CNG & PNG (Domestic) have highest margins due to allocation of domestic gas and ability to pass on the increased price as competing products viz. Diesel & LPG are priced higher PNG (Commercial) also has decent margin despite relatively high price of imported LNG as feedback as it is priced well below commercial LPG. PNG (Industrial) has lowest margins due to high price of imported LNG and Limited ability to pass on the price due to availability of cheaper alternatives (furnace oil etc.) Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma IGL and MGL have similar profiles and have high profitability compared to GGL (Gujarat Gas) Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma New Pricing Formula for Domestic Gas (Cost for CGD) Inclusion of natural gas trading hubs and exclusion of LNG (Prices) like Japan resulted in decreasing domestic prices Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma Domestic Prices of Gas Year 1997 to 2009 2010 to 13 FY 15 FY16 (H1) (H2) FY17 NG cost ($/mmbtu) 2 to 3 4 5.6 5.1 3.86 3.06 2.5 LNG Prices have also been renegotiated in 2016 which resulted in almost halving of LNG prices. Reduction in RM prices have been driving the profitability in Q1 & Q2 of FY 17 Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma Gross Margin Variation with Cost of Raw Material E E Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma Company has displayed strong capability to pass on the increased cost to a great extent even during worst time. This was possible as even after increasing prices it remains well below the prices of competing fuels viz. LPG for domestic PNG etc. Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma NPM has highest sensitivity to the Cost of Raw Material - All other costs very steady - Good NPM maintained even during the highest RM cost environment Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma Challenges/Threats Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma Challenges/Threats Regulation Risk Availability of domestic gas Prices of domestic gas Prices of Imported gas (LNG) Disruption by renewables Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma Regulatory Framework PNGRB Act & Regulations Network Exclusivity ( 25 Years & beyond) Marketing Exclusivity (5 years) Marketing Margins Transportation Charges Compression Charges Bid bond/Performance Guarantee Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Supreme Court Judgment Game changer CGD - Role of regulator has been defined in the judgment and has huge positive implications for all the CGD players. Fixing customer price is not within PNGRB purview, players have freedom to fix prices within their GA. Transportation charges & compression charges are applicable only for third party access after end of marketing exclusivity (not applicable for entities owning infrastructure) Which other natural monopoly (viz. Power etc.) has power to fix customer prices? Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma Quasi-Monopoly/ Moat ? Infrastructure exclusivity for 25 years Extendable for 10 years at a time. Practically it will be a huge challenge for new entrant to built parallel infrastructure considering nature & cost of investment Marketing exclusivity for five years Uncompetitive for third party even after ME ends as No domestic allocation of domestic gas Marketer has to arrange its own gas (High cost of imported LNG) Marketer has to show new customer commitment Why to compete? Companies prefer new GA. Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma Availability of domestic Gas – Sufficient even for most optimistic Growth Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma Huge scope for CGD to grow by getting increased allocation at the cost of other sectors Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma Domestic Gas Prices Inclusion of natural gas trading hubs and exclusion of LNG (Prices) like Japan from the domestic price formula likely to keep domestic gas prices benign Gas prices at Global trading hubs unlikely to harden in a hurry due to Global supply of natural gas likely to remain favourable due to new sources of GAS viz shale gas etc. Slow down in Key high growth consuming markets like China Global focus on renewable based power plants will reduce demand of Gas as a power source Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma LNG Prices Many large Liquefaction plants (Australia/Africa/Middle East) have/will come on-stream during last/next few year USA is now a gas surplus country and likely to start LNG export Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma Valuation Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Quoting at the highest band of historical valuation Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma Concluding Remarks Many things are going right for the company during last few years such as benign raw material prices, more allocation of cheap domestic gas, removal of judicial/regulatory overhang, government in environmental overdrive etc. Stock valuation is reflecting the growing optimism about the stock. Some of the factors that have helped the business during last few years are cyclical and can reverse. Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma Concluding Remarks IGL is now a well-researched and discovered stock. Opportunities of asymmetrical gain due to information gap are limited. Future price movement will depend on how long the present conditions prevail. Company has shown good resilience during 2012-13 which was almost like a stress test with bad news on all fronts. But considering growth opportunities & profitability and it is likely to be steady compounder in long term, particularly if bought at declines/corrections due to adverse news etc. Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma

Presented by - Sanjay Kumar Sharma Q & A Presented on - 22/01/2017 Presented by - Sanjay Kumar Sharma