Reliance Industries. Gasifiers pushed back to FY19

Transcription

1 Vol m Company Note Oil & Gas - Integrated India April 17, 2018 India REDUCE (no change) Consensus ratings*: Buy 30 Hold 4 Sell 6 Current price: Rs943.7 Target price: Rs800.0 Previous target: Rs770.0 Up/downside: -15.2% CGS-CIMB / Consensus: -23.6% Reuters: Bloomberg: Market cap: Average daily turnover: RELI.BO RIL IN US$91,278m Rs5,978,010m US$96.18m Rs6,188m Current shares o/s: 6,335m Free float: 51.4% *Source: Bloomberg Key changes in this note FY18F EPS decreased by 1.3%. FY20F EPS increased by 2.5%. 1, Price Close Relative to SENSEX (RHS) Apr-17 Jul-17 Oct-17 Jan Source: Bloomberg Price performance 1M 3M 12M Absolute (%) Relative (%) Major shareholders % held Mukesh Ambani family 42.0 Treasury shares 6.5 Life Insurance Corporation Of India 8.3 Insert Reliance Industries Insert Insert Gasifiers pushed back to FY19 RIL s 4QFY3/18 GRM estimated at US$11.4/bbl. Gasifiers to come only in FY19. Petchem earnings rose on the back of better margins and full cracker operations. High interest/depreciation charges to keep bottomline growth muted. We estimate 4QFY18F standalone net profit was Rs86.2bn, up 5.7% yoy. We maintain a Reduce rating, but roll over our SOP-based target price, raising it from Rs770 to Rs800. De-rating catalysts are continued low ROE. Refining GRM estimated at US$11.4/bbl We estimate RIL s GRM was US$11.4/bbl, US$0.2/bbl lower qoq. RIL s refining opex has been rising, leaving overall refining profitability (at the EBIT level) virtually flat yoy in FY18, despite a better operating environment. Delays in the completion of the new petcoke gasifiers continue and we now expect commercial operations only in 1HFY19. Petchem earnings to be robust on new cracker and better margins We expect petchem EBIT to have risen 22.7% qoq. We expect the refinery off-gas cracker to have run at full capacity. This would be the first quarter to reflect the full impact of all projects in the petchem segment. The margin environment in petchem was very robust, though domestic PE prices remained at a discount to landed prices for the second quarter in a row, versus historical trends of 8-10% premium. Over FY19-20F, we expect PE margins to weaken while polyester chain margins (PX, PTA) are estimated to rise. High capital cost charges to mute bottomline growth RIL s total capex on major projects in refining and petchem was US$18.5bn. However, with both key projects (cracker and gasifiers) delayed, we estimate that interest and forex losses capitalised over FY13-18F would be an additional US$6.4bn, resulting in higher depreciation charges. RIL has maintained a high level of gross debt (in forex) and cash (in rupees), benefiting from the interest rate arbitrage. However, LIBOR rates have jumped 100bp (60%) over last six months which could adversely impact interest costs. 4QFY18F standalone net profit estimated at Rs86.2bn We estimate standalone EBITDA at Rs149.5bn (up 8.7% qoq). But both interest and depreciation costs will rise sharply due to the commissioning of the cracker and we expect net profit at Rs86.2bn to have risen by only 1.9% qoq. The declining trend in oil/gas volumes should continue, though the overall earnings impact is now largely insignificant. We cut our FY18F EPS by 1.3% and raise FY20F EPS by 2.5%. Jio valuation assuming massive payback in the future We maintain our earnings model on a standalone basis. Our equity value for Jio is based on 1x P/BV (Rs1,097bn, Rs185/share). The rally in RIL s stock price in CY17 (which has sustained in CY18) can largely be attributed to a re-evaluation of the telecom business. But recent trends of continued investment in this segment, combined with pressure on tariffs, are clearly pushing back returns. The market is implicitly assuming a massive payback at some point in the future, which in our view, is a highly risky assumption. TP raised to Rs800, maintain Reduce With minimal changes to earnings, we roll forward our SOP-based TP, raising it from Rs770 to Rs800. Our earnings are below consensus as we believe the market is overestimating the positive impact on the bottomline from new projects (cracker, gasifiers). More importantly, we believe Jio s valuations are well ahead of fundamentals given that industry profitability is yet to stabilise and long-term returns on the project look uncertain. Positive surprises in terms of a rise in Jio tariffs and GRM strength are key upside risks. Analyst(s) Avadhoot SABNIS T (91) E avadhoot.sabnis@cgs-cimb.com Financial Summary Mar-16A Mar-17A Mar-18F Mar-19F Mar-20F Revenue (Rsm) 2,331,580 2,420,250 2,780,900 3,125,775 3,039,358 Operating EBITDA (Rsm) 393, , , , ,701 Net Profit (Rsm) 273, , , , ,045 Core EPS (Rs) Core EPS Growth 20.3% 14.4% 6.5% 4.7% 1.1% FD Core P/E (x) DPS (Rs) Dividend Yield 0.56% 0.58% 0.61% 0.64% 0.66% EV/EBITDA (x) P/FCFE (x) NA Net Gearing 10.9% 13.2% 15.4% 8.3% (0.4%) P/BV (x) ROE 12.1% 11.6% 11.1% 10.5% 9.7% % Change In Core EPS Estimates (1.29%) 0.04% 2.52% CIMB/consensus EPS (x) IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. Powered by the EFA Platform

2 Gasifiers pushed back to FY19 Refining GRM estimated at US$11.4/bbl The refining margin environment was marginally weaker on a qoq basis in 4Q. Margins for distillates (diesel/jet) were stronger while those for the gasoline pool (naphtha, gasoline, LPG) were weaker. Arab Light and Heavy differentials were higher, which was positive for RIL, though the increase in differential between Brent and Dubai was negative. In the last three quarters, while our estimates have broadly been in line, there has been divergence across segments with refining disappointing and petchem providing positive surprise. For example, over the last four quarters, there has been an increase in refining opex (derived based on RIL s disclosure of segment wise depreciation and hence EBITDA) which has resulted in refining profitability at the EBIT level remaining flat yoy in FY18. Trial runs of the petcoke gasifiers commenced in 3QFY18 and RIL previously guided for the completion of four gasifiers in 4QFY18 and the remaining six in 1QFY19. We now estimate further delays of at least a quarter, i.e. no impact from the gasifiers on the P&L even in 4QFY18. Even with the rise in oil prices (which would positively benefit the economics of the gasifier), we believe that the net impact of the gasifiers (after taking into account interest and depreciation) will be earnings negative. Our GRM estimate of US$12/bbl in FY19 and US$13/bbl in FY20 implicitly assumes a positive impact of US$1.3/bbl on overall GRMs as a result of the gasifiers. Figure 1: Crude and product differentials (US$/bbl) 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18F RIL reported GRM Singapore Complex GRM Spreads over Dubai crude Diesel Jet Fuel Naphtha Furnace Oil Gasoline LPG Crude differentials Arab Light - Heavy Differential Figure 2: RIL s refining GRM and opex (US$/bbl) 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18F GRM Opex Robust petchem earnings We expect petchem EBIT was Rs69.5bn in 4QFY18, up 22.7% qoq, led by higher volumes for PX, MEG and PE (due to the commissioning of the PX expansion and off-gas cracker). In fact, this quarter would be the first to reflect the full impact of all the projects in the petchem segment and from a volume perspective, further qoq gains are likely to be minimal. The only project yet to be completed would be the gasifiers which would come under refining. Petchem margins for products sold externally were all higher qoq, but the PP less P margins were slightly down (US$160/t compared to US$200/t in 3Q). In fact, RIL s estimate of PP less P margin in 9MFY18 has been running at US$ /t higher than our estimate. This could indicate a higher transfer price for the propylene from the refinery sold internally to the PP plant, which 2

3 could partly explain the trend of disappointing refining earnings and robust petchem earnings. Within petchem, a key concern has been severe pressure in domestic PE margins despite continued strength in global margins. Domestic prices of PE have historically been at a premium to landed costs. However, PE s premium has dropped from 13.2% in 1QFY18 to 6.5% in 2Q, then moved to a discount of 3.5% in 3Q and 3.7% in 4Q. This is likely due to the near doubling of domestic PE capacity to 5.6mmt, as the new capacity for RIL, GAIL, BCPL and OPAL progressively come online. Over FY19-20F, we expect PE margins to weaken as new capacities in the US are commissioned, while polyester chain margins (PX, PTA) are estimated to rise as demand catches up to absorb the product surplus. Figure 3: Petchem margins (Rs/kg) 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 PP less naphtha PE less naphtha PX less naphtha PTA less naphtha MEG less naphtha PFY less naphtha PSF less naphtha Figure 4: Domestic PE pricing has weakened considerably 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 PE PP High capital cost charges to mute bottomline growth We estimate capitalised expense at US$6.4bn In FY13, RIL launched a large expansion in its domestic petchem and refining business. This included expansion of its capacity in POY, PET, PX, PTA, and an ethane import project. A major portion was the construction of a new 1.5mmt offgas cracker (with downstream capacities for MEG and PE) and 10 petcoke gasifiers which would convert the existing petcoke output to gas, providing energy for the entire Jamnagar complex. Capex for these projects has inched up over the years, but RIL s final estimate was US$18.5bn. Initially, these projects were expected to be completed by the end of FY16, but there have been delays, particularly for the cracker and gasifiers. Given the extent of debt financing for these projects (virtually all of it is in forex loans), the delays have resulted in capitalisation of significant interest and forex losses (as the rupee has depreciated in the last five years). Based on the annual report figures up to FY17 and RIL s commentary at the analyst meetings in FY18, we estimate that the total capitalisation of interest and forex over FY13-18F on its standalone balance sheet would be US$6.4bn. 3

4 Hence, as the cracker and gasifiers become operational, the total capitalisation which would be subject to depreciation would be US$24.9bn, 35% higher than the cash cost of US$18.5bn. Figure 5: Interest and forex capitalisation (Rs bn) Year to 31 March F Total Standalone Interest capitalised Forex capitalised Total Total US$bn Consolidated Interest capitalised Forex capitalised Total Total US$bn Interest rates are inching up While RIL s net debt may look reasonable, it has maintained a policy of keeping a high level of both gross debt (in forex) and cash (in rupees). This has provided an interest arbitrage given the abnormally low level of global interest rates (at which debt could be raised) and higher domestic interest rates (at which rupee funds could be deployed). However, global interest rates have been inching up and RIL s effective interest rates (computed after considering interest capitalised) have been rising. In the last six months, LIBOR has shot up by 100bp (60%) which would adversely impact RIL s borrowing costs, in our view. Figure 6: Debt position for standalone and consolidated RIL (Rs bn) Standalone 4QFY17 1QFY18 2QFY18 3QFY18 Gross debt Cash Reported net debt Add: vendor financing Effective net debt Consolidated Gross debt Cash Reported net debt Add: deferred liability on spectrum Add: vendor financing Effective net debt Figure 7: LIBOR rates have jumped 100bp (60%) in last six months Figure 8: which will impact RIL interest costs % 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr % 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 Implied cost of debt (excl forex) Implied cost of debt (incl forex) 4

5 4QFY18 net profit estimated at Rs86.2bn We estimate standalone EBITDA was Rs149.5bn (up 8.7% qoq), largely driven by petchem earnings. This would be the first quarter to reflect the full impact of all projects in the petchem segment. Oil and gas volumes are expected to continue declining, though their impact on overall financials is now largely insignificant. The increase in pre- and post-tax profits would be more muted at 1.9-2% qoq due to a sharp rise in interest and depreciation charges (as the cracker is now operational). 3QFY18 interest costs included a gain of Rs920m, while we expect a loss of Rs3bn in 4Q due to rupee depreciation. We cut our FY18F EPS estimate by 1.3% and raise our FY20F EPS estimate by 2.5%. Figure 9: RIL s standalone quarterly result trends Rs bn 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18F yoy qoq EBITDA % 8.7% Interest % 49.0% Depreciation % 12.9% Exceptionals Other income % -7.6% Profit before tax % 1.9% Current tax % 2.0% Deferred tax % 1.1% Net profit % 1.9% Other comprehensive income post tax Total comprehensive income Total tax (current + deferred) 18.5% 22.4% 27.9% 28.3% 28.3% No. of Shares, net of treasury shares (bn) Diluted EPS % 1.9% Segment EBIT Petrochemicals % 22.7% Refining % -5.8% Oil & gas % 142.8% Others % -16.7% Total % 6.7% EBIT contribution Petrochemicals 35.4% 38.8% 42.8% 48.1% 55.3% Refining 64.2% 62.1% 56.9% 51.6% 45.6% Oil & gas -0.8% -2.3% -0.8% -0.8% -1.8% Others 1.2% 1.3% 1.1% 1.0% 0.8% Figure 10: RIL s standalone operational performance trends 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18F yoy % qoq % Refining Refinery crude throughput (mt) % -0.6% Refinery GRM (US$/bbl) % -1.7% Petrochemicals production Polyester (PFY, PSF, PET) 000t % -4.2% Fiber Intermediates (PX, PTA, MEG) 000t 1,885 2,091 2,228 2,347 2, % 9.7% Polymers (PE, PP, PVC) 000t 1, ,180 1,273 1, % 14.7% Oil & Gas PMT oil (000 b/d) -gross 16,000 14,505 15,217 14,348 13, % -5.9% PMT gas (mmscmd) -gross % -4.6% KG D6 oil (000 b/d) -gross 3,778 2,857 2,065 1,902 1, % -5.4% KG gas (mmscmd) -gross % -11.7% 5

6 Figure 11: RIL s standalone profit breakdown (Rs m) Year to 31 March F 2019F 2020F Segmental EBITDA Petrochemicals 95, , , , , ,884 Refining & Marketing 187, , , , , ,540 E&P 33,562 16,237 8,680 7,478 4,071 1,277 Total 316, , , , , ,701 EBITDA share % Petrochemicals 30% 29% 32% 45% 49% 46% Refining & Marketing 59% 67% 66% 53% 50% 54% E&P 11% 4% 2% 1% 1% 0% Depreciation (84,880) (85,900) (84,650) (96,241) (120,281) (136,544) Interest (23,670) (25,620) (27,230) (48,295) (62,563) (59,200) Forex gains/(losses) (690) (10) (400) Non-op income 87,210 78,210 87,090 70,974 88,610 89,162 Profit before tax 294, , , , , ,118 Tax (67,490) (86,320) (93,520) (123,386) (136,591) (138,073) Effective tax rate 23% 24% 23% 27% 28% 28% Net profit 227, , , , , ,045 Avg shares outstanding (m) EPS (Rs) SOURCE: CGS-CIMB RESEARCH, COMPANY Figure 12: Summary of key assumptions Year to 31 March F 2019F 2020F Exchange rate year average (Rs/USD) Refining & Marketing Refining throughput (mt) Refining GRM (US$/bbl) E&P PMT oil production (gross) -000 b/d PMT gas production (gross) - mmscmd KG-D6 gas production (gross) mmscmd KG-D6 gas price (US$/mmbtu) KG-D6 oil production (gross) -000 b/d Crude oil (Brent) price US$/bbl Petrochemicals Production Volumes (000 tonnes) Polyester 1,847 2,196 2,284 2,407 2,423 2,423 Polyester intermediates 4,878 6,431 6,892 9,144 10,201 10,201 Polymers 4,303 4,527 4,455 4,824 5,750 5,750 Cracker (ethylene production) 1,760 1,832 1,832 2,421 3,626 3,626 Margins (US$/t) key products PP less naphtha PE less naphtha PX less naphtha PTA less naphtha MEG less naphtha PFY less naphtha PSF less naphtha SOURCE: CGS-CIMB RESEARCH, COMPANY Figure 13: Earnings revision Old New Change % Year to 31 March 2018F 2019F 2020F 2018F 2019F 2020F 2018F 2019F 2020F Refinery GRM % -8.4% -0.8% Crude oil (Brent) price US$/bbl % 5.0% 5.3% Off gas cracker ultn 40% 98% 98% 25% 98% 98% -37.5% 0.0% 0.0% EBITDA (Rsbn) % 3.1% 6.8% Net profit (Rs bn) % 0.1% 2.6% Margins (US$/t) key products PE less naphtha % 11.8% 0.0% PFY less naphtha % 0.5% 0.5% PSF less naphtha % 0.7% 0.8% 6

7 Jio valuation assuming massive payback in future The sharp rally in RIL s stock price in CY17 (which has sustained in CY18) can largely be attributed to a re-evaluation of the telecom business (Jio). The market now believes that RIL s strategy of using capital as a weapon to drive out all marginal players and destroying profitability of the larger players will pay dividends in the long run as it continues to gain new subscribers. While the initial strategy of using free and discounted services to draw subscribers was understandable, there appears to be no sign of any stability in the tariffs. The tariff increase in Oct 17 was reversed by 10 Nov 17, with Jio offering cash back on every recharge. On 30 Mar 18, Jio announced that it was providing 12 months of complimentary prime benefits to all existing prime members while new customers would continue to pay a one-time fee of Rs99 during the on-boarding for prime memberships. This could lead to further pressure on ARPUs in FY19. Meanwhile, it continues to invest in the business. On 28 Dec 17, RIL announced the acquisition of telecom assets (towers, fibre, spectrum, etc.) from Reliance Communications (RCOM), which is run by Mr Anil Ambani. The size of the deal was not disclosed but we expect it to be around Rs230bn. This deal has been challenged in the courts, but we expect it to close in the next three months. Jio also continues to announce a string of investments aimed at beefing up its digital content which it intends to offer to subscribers. The rising investment and pressure on tariffs point to low returns in the nearterm. The market is implicitly assuming a massive payback at some point in the future, which in our view, is a highly risky assumption. Maintain Reduce, TP of Rs800 With minimal changes to our earnings, we roll forward our SOP-based TP, raising it from Rs770 to Rs800. Our earnings are below consensus as we believe that the market is over-estimating the positive impact on the bottomline from new projects (cracker, gasifiers). More importantly, we believe that Jio s valuations are well ahead of fundamentals given that industry profitability is yet to stabilise and long-term returns on the project look uncertain. Positive surprises in terms of a rise in Jio tariffs and GRM strength are key upside risks. Figure 14: Sum of parts valuation Valuation Sector Base Multiple (Rsm) US$m Rs/share Existing business valuation on EV/EBITDA Petrochemicals EBITDA on Rsm 272, ,773,747 27, Refining EBITDA on Rsm 325, ,148,564 33, Petchems + refining 3,922,311 60, PMT EBITDA on Rsm 6, , KG-D6 oil/gas producing reserves on DCF , Undeveloped reserves in KG-D6 & NEC ,586 1, Total domestic E&P 113,591 1, US shale at 4x EV/EBITDA less debt (197,280) (3,035) (33) Telecom at 1x P/B 1,097,470 16, Retail at 1x price/book 92, ,000 1, Balance businesses 992,190 15, Less: (net debt) cash (290,948) (4,476) (49) Total equity valuation 4,737,143 72, SOURCES: CIMB, COMPANY REPORTS 7

8 BY THE NUMBERS P/BV vs ROE Jan-14AJan-15AJan-16AJan-17A Jan-18F Jan-19F 13.50% 13.05% 12.60% 12.15% 11.70% 11.25% 10.80% 10.35% 9.90% 9.45% 9.00% 12-mth Fwd FD Core P/E vs FD Core EPS 16.8 Growth Jan-14A Jan-15A Jan-16A Jan-17A Jan-18F Jan-19F 25.0% 22.2% 19.4% 16.7% 13.9% 11.1% 8.3% 5.6% 2.8% 0.0% Rolling P/BV (x) (lhs) ROE (rhs) 12-mth Fwd Rolling FD Core P/E (x) (lhs) FD Core EPS Growth (rhs) Profit & Loss (Rsm) Mar-16A Mar-17A Mar-18F Mar-19F Mar-20F Total Net Revenues 2,331,580 2,420,250 2,780,900 3,125,775 3,039,358 Gross Profit 545, , , , ,559 Operating EBITDA 393, , , , ,701 Depreciation And Amortisation (85,900) (84,650) (96,241) (120,281) (136,544) Operating EBIT 307, , , , ,157 Financial Income/(Expense) (25,620) (27,230) (48,295) (62,563) (59,200) Pretax Income/(Loss) from Assoc Non-Operating Income/(Expense) 78,200 86,690 70,974 88,610 89,162 Profit Before Tax (pre-ei) 360, , , , ,118 Exceptional Items Pre-tax Profit 360, , , , ,118 Taxation (86,320) (93,520) (123,386) (136,591) (138,073) Exceptional Income - post-tax Profit After Tax 273, , , , ,045 Minority Interests Preferred Dividends FX Gain/(Loss) - post tax Other Adjustments - post-tax Net Profit 273, , , , ,045 Recurring Net Profit 273, , , , ,045 Fully Diluted Recurring Net Profit 273, , , , ,045 Cash Flow (Rsm) Mar-16A Mar-17A Mar-18F Mar-19F Mar-20F EBITDA 393, , , , ,701 Cash Flow from Invt. & Assoc. 78,210 87,090 70,974 88,610 89,162 Change In Working Capital 335, ,912 (47,108) (129,302) (31,509) (Incr)/Decr in Total Provisions Other Non-Cash (Income)/Expense Other Operating Cashflow (10) (400) Net Interest (Paid)/Received (25,620) (27,230) (48,295) (62,563) (59,200) Tax Paid (78,010) (83,330) (91,737) (99,517) (100,596) Cashflow From Operations 703, , , , ,558 Capex (527,710) (351,570) (172,753) (138,500) (150,200) Disposals Of FAs/subsidiaries Acq. Of Subsidiaries/investments (262,513) (381,441) (313,400) 0 0 Other Investing Cashflow Cash Flow From Investing (790,222) (733,011) (486,153) (138,500) (150,200) Debt Raised/(repaid) 94,840 3, ,621 (203,344) (70,000) Proceeds From Issue Of Shares 2,857 7, Shares Repurchased Dividends Paid (36,216) 0 (39,383) (41,194) (42,985) Preferred Dividends Other Financing Cashflow (65,143) 21, Cash Flow From Financing (3,662) 32,320 96,238 (244,538) (112,985) Total Cash Generated (90,240) (101,689) 26,166 (3,749) 234,373 Free Cashflow To Equity 8,263 (130,589) 65,550 37, ,358 Free Cashflow To Firm (60,957) (106,779) (21,777) 303, ,558 8

9 BY THE NUMBERS cont d Balance Sheet (Rsm) Mar-16A Mar-17A Mar-18F Mar-19F Mar-20F Total Cash And Equivalents 795, , , , ,161 Total Debtors 34,950 54,720 63,437 71,430 69,448 Inventories 280, , , , ,594 Total Other Current Assets 86, , , , ,379 Total Current Assets 1,196,497 1,198,855 1,244,505 1,287,206 1,505,583 Fixed Assets 2,615,030 2,881,950 2,958,461 2,976,680 2,990,336 Total Investments 1,005,216 1,386,658 1,700,058 1,700,058 1,700,058 Intangible Assets Total Other Non-Current Assets Total Non-current Assets 3,620,246 4,268,608 4,658,519 4,676,738 4,690,394 Short-term Debt 144, , , , ,000 Current Portion of Long-Term Debt Total Creditors 945,890 1,228,350 1,200,547 1,117,502 1,069,782 Other Current Liabilities Total Current Liabilities 1,090,790 1,454,150 1,330,907 1,247,502 1,199,782 Total Long-term Debt 926, ,660 1,079, , ,737 Hybrid Debt - Debt Component Total Other Non-Current Liabilities Total Non-current Liabilities 926, ,660 1,079, , ,737 Total Provisions 259, , , , ,307 Total Liabilities 2,276,760 2,584,330 2,723,974 2,474,854 2,394,826 Shareholders' Equity 2,539,984 2,883,133 3,179,049 3,489,090 3,801,150 Minority Interests Total Equity 2,539,984 2,883,133 3,179,049 3,489,090 3,801,150 Key Ratios Mar-16A Mar-17A Mar-18F Mar-19F Mar-20F Revenue Growth (29.1%) 3.8% 14.9% 12.4% (2.8%) Operating EBITDA Growth 24.2% 10.0% 22.9% 9.4% 3.0% Operating EBITDA Margin 16.9% 17.9% 19.1% 18.6% 19.7% Net Cash Per Share (Rs) (46.81) (64.40) (82.85) (49.14) 2.27 BVPS (Rs) Gross Interest Cover Effective Tax Rate 24.0% 22.9% 26.9% 28.0% 28.0% Net Dividend Payout Ratio 13.2% 12.5% 12.3% 12.2% 12.6% Accounts Receivables Days Inventory Days Accounts Payables Days ROIC (%) 12.7% 11.4% 13.6% 13.7% 12.9% ROCE (%) 11.1% 10.8% 11.4% 11.6% 11.2% Return On Average Assets 6.75% 6.47% 6.47% 6.63% 6.50% Key Drivers Mar-16A Mar-17A Mar-18F Mar-19F Mar-20F Oil Price (US$/bbl) Volume Growth (%) 2.4% 0.8% 0.1% 0.0% 0.0% Ratio Of Up To Downstream (x) N/A N/A N/A N/A N/A Operating Cash Cost (US$/bbl) N/A N/A N/A N/A N/A Ratio Of High To Low Margin (x) N/A N/A N/A N/A N/A 9

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11 Country CGS-CIMB Entity Regulated by Hong Kong CGS-CIMB Securities (Hong Kong) Limited Securities and Futures Commission Hong Kong India CGS-CIMB Securities (India) Private Limited Securities and Exchange Board of India (SEBI) Indonesia PT CGS-CIMB Sekuritas Indonesia Financial Services Authority of Indonesia Singapore CGS-CIMB Research Pte. Ltd. Monetary Authority of Singapore South Korea CGS-CIMB Securities (Hong Kong) Limited, Korea Branch Financial Services Commission and Financial Supervisory Service Thailand CGS-CIMB Securities (Thailand) Co. Ltd. Securities and Exchange Commission Thailand Reports relating to Malaysia are produced by CIMB as listed in the table below: Country CIMB Entity Regulated by Malaysia CIMB Investment Bank Berhad Securities Commission Malaysia Other Significant Financial Interests: (i) As of April 17, 2018 CIMB has a proprietary position in the securities (which may include but not limited to shares, warrants, call warrants and/or any other derivatives) in the following company or companies covered or recommended in this report: (a) - (ii) Analyst Disclosure: As of April 17, 2018, the analyst(s) who prepared this report, and the associate(s), has / have an interest in the securities (which may include but not limited to shares, warrants, call warrants and/or any other derivatives) in the following company or companies covered or recommended in this report: (a) - This report does not purport to contain all the information that a prospective investor may require. Neither CGS-CIMB or CIMB, as the case may be, nor any of their respective affiliates (including CGIFHL, CIMBG and their related corporations) make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information and opinion contained in this report. Neither CGS-CIMB or CIMB, as the case may be, nor any of their respective affiliates nor their related persons (including CGIFHL, CIMBG and their related corporations) shall be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof. This report is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CGS-CIMB s or CIMB s (as the case may be) clients generally and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. The information and opinions in this report are not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, related investments or other financial instruments or any derivative instrument, or any rights pertaining thereto. Investors are advised to make their own independent evaluation of the information contained in this research report, consider their own individual investment objectives, financial situation and particular needs and consult their own professional and financial advisers as to the legal, business, financial, tax and other aspects before participating in any transaction in respect of the securities of company(ies) covered in this research report. The securities of such company(ies) may not be eligible for sale in all jurisdictions or to all categories of investors. Australia: Despite anything in this report to the contrary, this research is provided in Australia by CGS-CIMB Securities (Singapore) Pte. Ltd. and CGS-CIMB Securities (Hong Kong) Limited. This research is only available in Australia to persons who are wholesale clients (within the meaning of the Corporations Act 2001 (Cth) and is supplied solely for the use of such wholesale clients and shall not be distributed or passed on to any other person. You represent and warrant that if you are in Australia, you are a wholesale client. This research is of a general nature only and has been prepared without taking into account the objectives, financial situation or needs of the individual recipient. CGS-CIMB Securities (Singapore) Pte. Ltd. and CGS-CIMB Securities (Hong Kong) Limited do not hold, and are not required to hold an Australian financial services license. CGS-CIMB Securities (Singapore) Pte. Ltd. and CGS-CIMB Securities (Hong Kong) Limited rely on passporting exemptions for entities appropriately licensed by the Monetary Authority of Singapore (under ASIC Class Order 03/1102) and the Securities and Futures Commission in Hong Kong (under ASIC Class Order 03/1103). Canada: This research report has not been prepared in accordance with the disclosure requirements of Dealer Member Rule 3400 Research Restrictions and Disclosure Requirements of the Investment Industry Regulatory Organization of Canada. For any research report distributed by CIBC, further disclosures related to CIBC conflicts of interest can be found at China: For the purpose of this report, the People s Republic of China ( PRC ) does not include the Hong Kong Special Administrative Region, the Macau Special Administrative Region or Taiwan. The distributor of this report has not been approved or licensed by the China Securities Regulatory Commission or any other relevant regulatory authority or governmental agency in the PRC. This report contains only marketing information. The distribution of this report is not an offer to buy or sell to any person within or outside PRC or a solicitation to any person within or outside of PRC to buy or sell any instruments described herein. This report is being issued outside the PRC to a limited number of institutional investors and may not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. France: Only qualified investors within the meaning of French law shall have access to this report. This report shall not be considered as an offer to subscribe to, or used in connection with, any offer for subscription or sale or marketing or direct or indirect distribution of financial instruments and it is not intended as a solicitation for the purchase of any financial instrument. Germany: This report is only directed at persons who are professional investors as defined in sec 31a(2) of the German Securities Trading Act (WpHG). This publication constitutes research of a non-binding nature on the market situation and the investment instruments cited here at the time of the publication of the information. The current prices/yields in this issue are based upon closing prices from Bloomberg as of the day preceding publication. Please note that neither the German Federal Financial Supervisory Agency (BaFin), nor any other supervisory authority exercises any control over the content of this report. 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12 CGS-CIMB Securities (Hong Kong) Limited. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CHK has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of CHK. CHK does not make a market on other securities mentioned in the report. India: This report is issued and distributed in India by CGS-CIMB Securities (India) Private Limited ( CGS-CIMB India ) which is registered with the National Stock Exchange of India Limited and BSE Limited as a trading and clearing member under the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, In accordance with the provisions of Regulation 4(g) of the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013, CGS-CIMB India is not required to seek registration with the Securities and Exchange Board of India ( SEBI ) as an Investment Adviser. CGS-CIMB India is registered with SEBI as a Research Analyst pursuant to the SEBI (Research Analysts) Regulations, 2014 ("Regulations"). This report does not take into account the particular investment objectives, financial situations, or needs of the recipients. It is not intended for and does not deal with prohibitions on investment due to law/jurisdiction issues etc. which may exist for certain persons/entities. Recipients should rely on their own investigations and take their own professional advice before investment. The report is not a prospectus as defined under Indian Law, including the Companies Act, 2013, and is not, and shall not be, approved by, or filed or registered with, any Indian regulator, including any Registrar of Companies in India, SEBI, any Indian stock exchange, or the Reserve Bank of India. No offer, or invitation to offer, or solicitation of subscription with respect to any such securities listed or proposed to be listed in India is being made, or intended to be made, to the public, or to any member or section of the public in India, through or pursuant to this report. The research analysts, strategists or economists principally responsible for the preparation of this research report are segregated from the other activities of CGS-CIMB India and they have received compensation based upon various factors, including quality, accuracy and value of research, firm profitability or revenues, client feedback and competitive factors. Research analysts', strategists' or economists' compensation is not linked to investment banking or capital markets transactions performed or proposed to be performed by CGS-CIMB India or its affiliates. The analyst's, strategists' or economists' or his/her relative Research Analyst's, strategists' or economists' has not received any investment banking related compensation from the companies mentioned in the report in the past 12 months. The analyst's, strategists' or economists' or his/her relative Research Analyst's, strategists' or economists' has not received any compensation from the companies mentioned in the report in the past 12 months. None of the analyst, strategist, or economist has served as an officer, director or employee of the companies mentioned in the report. The analyst(s) has(have) not had any serious disciplinary action taken against him/her(them). The analyst, strategist, or economist does not have any material conflict of interest at the time of publication of this report. CGS-CIMB India has not received any investment banking related compensation from the companies mentioned in the report in the past 12 months. CGS-CIMB India has not received any compensation from the companies mentioned in the report in the past 12 months. Indonesia: This report is issued and distributed by PT CGS-CIMB Sekuritas Indonesia ( CGS-CIMB Indonesia ). The views and opinions in this research report are our own as of the date hereof and are subject to change. CGS-CIMB Indonesia has no obligation to update its opinion or the information in this research report. Neither this report nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens wherever they are domiciled or to Indonesian residents except in compliance with applicable Indonesian capital market laws and regulations. This research report is not an offer of securities in Indonesia. The securities referred to in this research report have not been registered with the Financial Services Authority (Otoritas Jasa Keuangan) pursuant to relevant capital market laws and regulations, and may not be offered or sold within the territory of the Republic of Indonesia or to Indonesian citizens through a public offering or in circumstances which constitute an offer within the meaning of the Indonesian capital market law and regulations. Ireland: CGS-CIMB is not an investment firm authorised in the Republic of Ireland and no part of this document should be construed as CGS-CIMB acting as, or otherwise claiming or representing to be, an investment firm authorised in the Republic of Ireland. Malaysia: This report is distributed by CIMB solely for the benefit of and for the exclusive use of our clients. CIMB has no obligation to update, revise or reaffirm its opinion or the information in this research reports after the date of this report. New Zealand: In New Zealand, this report is for distribution only to persons who are wholesale clients pursuant to section 5C of the Financial Advisers Act Singapore: This report is issued and distributed by CGS-CIMB Research Pte Ltd ( CGS-CIMBR ). CGS-CIMBR is a financial adviser licensed under the Financial Advisers Act, Cap 110 ( FAA ) for advising on investment products, by issuing or promulgating research analyses or research reports, whether in electronic, print or other form. Accordingly CGS-CIMBR is a subject to the applicable rules under the FAA unless it is able to avail itself to any prescribed exemptions. Recipients of this report are to contact CGS-CIMB Research Pte Ltd, 50 Raffles Place, #16-02 Singapore Land Tower, Singapore in respect of any matters arising from, or in connection with this report. CGS-CIMBR has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only. If you have not been sent this report by CGS-CIMBR directly, you may not rely, use or disclose to anyone else this report or its contents. If the recipient of this research report is not an accredited investor, expert investor or institutional investor, CGS-CIMBR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. If the recipient is an accredited investor, expert investor or institutional investor, the recipient is deemed to acknowledge that CGS-CIMBR is exempt from certain requirements under the FAA and its attendant regulations, and as such, is exempt from complying with the following : (a) Section 25 of the FAA (obligation to disclose product information); (b) Section 27 (duty not to make recommendation with respect to any investment product without having a reasonable basis where you may be reasonably expected to rely on the recommendation) of the FAA; (c) MAS Notice on Information to Clients and Product Information Disclosure [Notice No. FAA-N03]; (d) MAS Notice on Recommendation on Investment Products [Notice No. FAA-N16]; 12