RELIANCE INDUSTRIES Management meet takeaways; MJ-1 discovery

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1 COMPANY UPDATE RELIANCE INDUSTRIES Management meet takeaways; MJ-1 discovery India Equity Research Oil, Gas and Services Our interaction with the senior management of Reliance Industries (RIL) two weeks back, has renewed our confidence on the company s growth prospects. The management expects construction of most refining/petchem projects to commence in FY14 and complete by FY16 (specific timings yet to be known). This should drive RIL s earnings growth over the next few years. New upstream fields require large increase in gas price to justify capital spending and the management is hopeful of a free market pricing over the next few years. In the shale gas business, negative surprise of higher capex per well will be made up by improving drilling efficiency and recovery rates. Growth in shale will come from drilling inventory of 4,000 wells compared to 400 wells drilled so far. We believe while most earnings growth are expected in FY15-17, stable refining margin on back of capacity closures, slower capacity addition globally in chemicals boosting operating rates and gas price hike are key triggers for RIL. Recent news on discovery in MJ-1 well is positive and we estimate 1.8tcfe gas leading to increase in TP by INR 29/share to INR 1036/share. Reiterate BUY. Significant discovery in MJ-1 well; Peg 1.8tcfe and INR29/share On May 24, RIL/BP/Niko RIL announced a `significant discovery in KG-D6 MJ-1 well at ~2000m below the existing producing D1/D3 fields. Gas flowed at 0.87mmscmd and 2,121 bopd, constrained by equipment capacity. Reported gross column of 155m is very high. On March 20, Niko estimated MJ-1 s best/high prospective resources at 1.2/3.6tcfe having 29% liquids. We peg our estimate of recoverable resources at 1.8tcfe. Production of MJ-1 discovery should not take as much time as a normal discovery as it is located below existing producing D1/D3 fields. We estimate value of the discovery at INR29/share and henceforth, increase our target to INR 1036/share. Outlook and valuations: Capex to drive growth; reiterate BUY RIL s FY11-13 earnings CAGR were muted at 4% due to negative surprise on India upstream. Going forward, as the company has embarked upon a capex phase (capex at 40-45% of current market cap) in refining/petchem/shale gas, we see earnings CAGR reverting to >15% over the next few years. Increased visibility of upstream discoveries, approvals and higher gas price will aid further growth. Reiterate BUY/Sector Outperformer with new TP of INR 1,036. Financials Year to March FY12 FY13 FY14E FY15E Net revenues (INR mn) 3,585,010 3,970,620 4,202,015 4,261,180 EBITDA (INR mn) 345, , , ,578 Net profit (INR mn) 197, , , ,636 Diluted EPS (INR) EV/EBITDA (x) ROAE (%) Edelweiss Research is also available on Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. EDELWEISS 4D RATINGS Absolute Rating Rating Relative to Sector BUY Edelweiss Securities Limited Outperformer Risk Rating Relative to Sector Medium Sector Relative to Market MARKET DATA (R: RELI.BO, B: RIL IN) Equalweight CMP : INR 786 Target Price : INR 1, week range (INR) : 955 / 673 Share in issue (mn) : 3,229.3 M cap (INR bn/usd mn) : 2,540/ 45,551 Avg. Daily Vol.BSE/NSE( 000) : 3,502.9 SHARE HOLDING PATTERN (%) Current Q3FY13 Q2FY13 Promoters * MF's, FI's & BK s FII's Others * Promoters pledged shares (% of share in issue) PRICE PERFORMANCE (%) Stock Nifty : NIL EW O & G Index 1 month (2.1) months (8.8) months Niraj Mansingka, CFA niraj.mansingka@edelweissfin.com Kiran Tulasi kiran.tulasi@edelweissfin.com May 24, 2013

2 Oil, Gas and Services Projects construction to begin; ongoing projects to complete by FY16 Detailed design of almost all RIL projects has been completed and ordering for long-lead items has begun. Key monitorable will be the deliverable time for long-lead items. RIL is favourably placed during the global slowdown due to quicker delivery times and better bargaining for orders placed with project suppliers. Construction of most projects is expected to commence in FY14. While most polyester projects are expected to start before FY15 end, other large projects (pet coke gasification, off gas cracker) are expected to be commercialised sometime in FY16. Exact timeline will be clear as the projects progress. The management does not expect much cash spending in FY14 due to back-ended nature of cash spending. FY15/FY16 is expected to account for bulk of the cash spent on projects. Upstream approvals remain key; company hopeful of an early outcome The management believes growth in production from existing producing fields D1/D3 in KG- D6 block will come from: (a) gas compression; (b) work-over programmes; and (c) start of production from MJ1 discovery (yet to ascertain the quantum). These activities require two drilling seasons and with the current drilling window (Jan-Jun) already behind us, production can, at the earliest, increase from mid-2015, assuming approvals come today. For new fields/resources/discoveries (NEC-25, CBM, R-series), RIL will require significant increase in gas price to justify capital spending. Ideal situation would be a free market pricing, which the management is hopeful will emerge over the next few years. These new fields will take between three and four years to produce first gas from the date it receives government approvals. Learning phase in shale gas over RIL has now two full years of experience in the shale gas business and the learning phase is now over. There is 30 years of production ahead. While well production parameters have surprised positively, capex per well has been higher than estimated. However, efficiency gains are now kicking in and capital costs seem to have stabilised. The management believes the biggest upside will come from higher recovery rates in the entire shale gas assets, which is a natural corollary as assets mature and technology evolves. RIL has so far drilled 400 wells and still has an inventory of 4,000 wells to be drilled. Payback of each well is 4-6 years. Investors seem to have under-estimated the value created by the company in the shale gas business. Retail losses have receded; value creation in future Reliance Retail is the largest retailing company in the country. Retailing is a localised business and RIL has used its initial presence to understand consumer preferences. It has turned profitable at the EBITDA level and profitability should continue to improve. In the future, the company may look at options to create shareholder value, but it is early to comment on the same. Telecom to be primarily data-focused strategy The agreement with Reliance Communications to share passive infra is an arms-length contract. RIL is yet to finalise the rollout plan. However, the company s telecom strategy will be data focused and it has an advantage of being the only player with a pan-india license. Seizing the opportunity is the real challenge. 2 Edelweiss Securities Limited

3 Reliance Industries STAR to institutionalise RIL s DNA Till now, RIL has been a tightly run company. Core strengths have been its strong project management skills backed by a robust business process framework. By launching Smart Transformation at Reliance (STAR), RIL plans to institutionalise its core strengths. It is looking at the next level beyond current 8-10 people and plans to create a strong leadership group of people in the organisation. Significant discovery in MJ-1; we peg our estimate at 1.8tcfe BP/RIL/Niko in a joint statement announced a discovery in KG-D6 field. The discovery in MJ- 1 well, named D-55, was found ~2000m below the existing producing D1/D3 fields. Gas flowed at 0.87mmscmd and 2,121bopd, constrained by the test equipment capacity. Discovery had gross hydrocarbon column of 155m. Few things that we believe are worth noting (1) Never before have we seen any joint statement from BP/RIL/Niko. Press release mentions significant discovery, (2) Niko, on March 20, 2013 said that MJ-1 targets are similar to MA field and pre-drill best estimate of 1.155tcfe (819bcf gas + 56mmbbls condensate) and high estimate of 3.618tcfe (2.562tcf gas + 176mn bbls oil) all estimates of Niko pegged condensate at 29%, (3) BP Plc had been very positive and had re-iterated multiple times on the huge prospects in lower/deeper regions of the block, and (4) As per media, there was ring-fencing for exploration costs and the risk of the same has been mitigated. Gross column of 155m is very high and positively surprising. Even a net pay of 20% for the entire lateral would lead to significant reserves estimates. While we remain constrained due to low clarity from management, we have attempted to arrive at a ballpark estimate of reserves. Even if we assume 25% probability of High Estimate, we arrive at 1.8tcfe gas having condensate of 29%. We peg the discovery range at tcfe. Table 1: Niko's estimate of prospective resources before well drilling (20-Mar-2013) Low Best High Gas (bcf) ,562 Liquids / Condensate (mm bbls) O + OEG (bcfe) 370 1,155 3,618 O + OEG (tcfe) Condensate (%) Source: Niko, Edelweiss research Adding INR 29/share to RIL SOTP on account of MJ-1 discovery Assuming 1.8tcfe recoverable reserves, of which 29% is condensate and remaining 71% dry natural gas, we arrive NPV of MJ-1 at INR29/share. Implied valuation of MJ-1 at USD8.6/boe compares favourably to valuation of existing KG-D6 fields at USD9.3/boe we note here that MJ-1 has 29% condensate compared to 3% in existing KG-D6 fields. We henceforth increase our TP of RIL from INR1007 to INR1036/share, noting that upside risks are possible on the same. 3 Edelweiss Securities Limited

4 Oil, Gas and Services Table 2: Increasing RIL s target price to INR1,036 Fair value (March 2014) Base value Base value Base value (USD bn) (INR bn) (INR/share) (a) PMT (b) KG-D (c) NEC (d) CBM (e) Value of MJ-1 discovery India Upstream Shale Gas Refining (@ EV/EBITDA = 6x) , Petchem (@ EV/EBITDA = 6x) Retail (@ 1x IC) Telecom (@ 0.8x IC) Value of operating assets , Cons. Cash & Cash Eq Investments WIP debt (@66% of CWIP) Gross Debt Net debt SOTP value (Mar-14) ,027 1,036 CMP 786 Return on CMP (%) 32% Source: Edelweiss research Capex Focus Charts & Tables Table 3: RIL s announced capex plans in refining and chemicals expected to generate CROCI of 15% Project Capital cost Implied EBITDA Implied PAT Implied EPS Last unit CROCI (%) (USD mn) (USD mn) (USD mn) (INR) commercialised Pet-Coke Gasification 4, % 1, FY16 Off-gas cracker 3, % FY17 Polyester Expansion 4, % FY15 TOTAL 11, % 2, Source: RIL, Edelweiss research 4 Edelweiss Securities Limited

5 Reliance Industries The petcoke gasification project will use petcoke as a feedstock to produce syngas, which in turn will be used to produce power, hydrogen and steam for refinery Syngas is expected to replace high cost LNG (9.0 mmscmd) and Refinery Fuel Gas (RFG, 4 mmscmd) currently used for power generation in the refinery. Petcoke is the lowest value refinery product and its usage for gasification will transform Jamnagar into a bottomless refinery Pet Coke Gasification Fig. 1: Petcoke gasification will use petcoke feedstock and provide fuel to refinery Crude Petcoke Coal Refinery H 2 SNG Gasification Fuels Petrochem Syngas CO to Acetic acid New Existing Source: RIL, Edelweiss research The planned gasification plants at Jamnagar will be among the largest in the world and RIL has selected Phillips66 s E-Gas Technology Fig.2: Syngas produced from petcoke gasification will replace LNG to produce captive power Existing After gasification CPP Power 6.3 CPP Power To refinery LNG Steam Syngas Steam 9 mmscmd SMR PSA H2 9 mmscmd 2.7 PSA H2 Source: RIL, Edelweiss research 5 Edelweiss Securities Limited

6 Oil, Gas and Services Fig. 3: Increasing differential between LNG and Petcoke has increased the attractiveness of Petcoke Gasification We believe RIL may have taken a view of sustenance of high crude prices as the project becomes viable only when LNG prices remain upwards of USD12/mmbtu While the project s CROCI is 10% at LNG price of USD12/mmbtu, it rises to 18% when LNG prices are at USD16/mmbtu Table 4: RIL s petcoke gasification capex is at par with similar projects globally Global Petcoke Gasification Cost (USD mn) Capacity (MW) Source: PIRA 2011 Cost/capacity (USD/W) Duke Energy's Edwardsport IGCC Project 2, Wallula Energy Resource Center 2, Carson Hydrogen Power Project 1, Hunton Energy Freeport Plant (Lockwood) 2, Reliance Industries 4,000 1, Source: Edelweiss research While GRMs will marginally fall due to use of petcoke for gasification, opex will fall more as a result of cheaper cost of gas used for power production We estimate a net increase in GRMs of USD2/bbl Table 5: Economics of petcoke gasification CROCI of 18% Assumed LNG costs (USD/mmbtu) 15.3 Assumed RFG costs (USD/mmbtu) 6.0 Blended cost of LNG + RFG (USD/mmbtu) 12.4 Increase in GRMs (USD/bbl) (0.3) Increase in Opex (USD/bbl) (2.4) Increase in Net GRMs or EBITDA (USD/bbl) 2.0 EBITDA increase (USD mn/year) 1,005 EBITDA increase (INR bn/year) 53 PAT increase (INR bn) 22 EPS increase (INR) 7.5 Capex (USD mn) 4,000 CROCI (%) 18.3% ROCE (%) 13.3% Source: Edelweiss research 6 Edelweiss Securities Limited

7 Reliance Industries RIL has planned a 1.36 mtpa offgas cracker one of the largest planned capacities in the world that use refinery off-gases (ROG) Off-gas cracker Fig.4: Syngas to substitute RFG, making the latter available for off-gas cracking Existing After gasification ROG, a by-product of refining (from FCC/hydrocracker/delayed coking), is currently burnt as fuel RIL plans to replace ROG with syngas produced from petcoke gasification for use as fuel RFG 4 mmscmd Fired Heaters Syngas Substitute SNG Natural Gas 5.2 mmscmd (SNG) 4.0 RFG Fired Heaters Recovery This will make ROG available for value addition in olefins (ethylene and propylene) and its derivatives C2=+C2 Source: RIL, Edelweiss research We estimate capex of USD bn. The capacity is expected to be operational by CY16 Assuming an opportunity cost of ROG at USD6/mmbtu, we estimate total cost at USD500/mt We estimate investment in off-gas cracker to generate CROCI of 18% Table 6: Planned projects in off-gas cracker Product Curernt Proposed Total Cost of plant Expansion cost capacity expansion capacity (USD/Tonne) (USD mn) (KTPA) (KTPA) (KTPA) Ethylene 1,883 1,365 3,248 2,500 3,413 Propylene Included MEG , LDPE Included HDPE / LLDPE ,478 Included Source: RIL, Edelweiss research 7 Edelweiss Securities Limited

8 Oil, Gas and Services Table 7: Economics of off-gas cracker CROCI of 17% and ROCE of 12% Capacity Capacity Realisation MMTPA USD/mt USD mn Ethylene 1.4 1,041 1,421 Propylene 0.2 1, ,054 1,601 Feedstock costs Opex EBITDA Depreciation 171 EBIT 611 Interest 143 PBT 468 PAT 309 CROCI 16.8% ROCE 11.8% ROE 30.2% Capex 3,413 Debt (70%) 2,389 Equity (30%) 1,024 Source: Edelweiss research Expansion in polyester chain Table 8: Planned projects in polyester chain at capex of ~USD4bn Current Proposex Total capacity expansion capacity Planned operational Product (KTPA (KTPA) (KTPA) date PFY ,065 Q2FY14 PTY Q2FY14 PTA 2,050 2,296 4,346 Q4FY14 & H1FY15 PET Q3FY14 & Mar 14 PBR SBR Mid-2014 (FY15) Paraxylene 1,856 1,800 3,656 CY14 or FY15 Source: RIL, Edelweiss research 8 Edelweiss Securities Limited

9 Company Description Reliance Industries RIL is the largest private player in the refining, petrochemical and E&P sectors in India. While RIL s refining complex in Jamnagar is the largest in the world and among the most complex, it is also among the largest integrated petrochemical producers globally. Apart from E&P in India, RIL has made significant investments in US shale gas. In terms of EBIT, Petrochemicals contribute 38%, Refining 40% and E&P 22%. RIL is also expanding its presence in the areas of consumer retailing and telecom, but EBIT contribution from these other businesses is <1%. RIL has a weight of 8.9% in BSE Sensex and 7.3% in S&P CNX Nifty. Investment Theme RIL s strength lies in its ability to build businesses of global scale and execute complex, timecritical, and capital-intensive projects which will prove advantageous as it embarks on large investments in all core segments. We expect non-regulated segments (refining, chemicals and shale) to contribute ~90% of incremental EBITDA over the next few years. We are positive on both refining and chemicals, as global refining capacity closures offset additions, and global utilization rates have bottomed out in chemicals. RIL is currently in a capex phase, investing in world-scale projects like petcoke gasification and off-gas crackers, which are expected to drive future growth. Its investment in US shale gas is already bearing fruit, and is expected to contribute ~12% of EBITDA by FY15. Key Risks Slow down in global demand or larger than expected capacity additions could impact RIL s refining and chemical margins. Delays in government approvals for India E&P or weak domestic gas prices could hamper progress in upstream. Weak US natural gas prices could lower the profitability of shale gas assets, though it could be offset by the liquids-rich acreages which are currently highly profitable. Rupee appreciation may impact negatively as RIL is positively leveraged to the depreciating currency. 9 Edelweiss Securities Limited

10 Oil, Gas and Services Financial Statements Key Assumptions Year to March FY12 FY13 FY14E FY15E Macro GDP(Y-o-Y %) Inflation (Avg) Repo rate (exit rate) USD/INR (Avg) Sector USD/INR (Avg) Upstream Brent Crude (USD/bbl) India natural gas price (USD/mmbtu) Petchem Edelweiss cracking margins (USD/mt) (23.8) (43.9) Polypropylene margins (USD/mt) Paraxylene margins (USD/mt) PTA margins (USD/mt) MEG margins (USD/mt) Company Refining Refining throughput (mmt) GRM (USD/bbl) Chemicals Chemicals production (mmt) Chemicals EBITDA (USD/mt) India E&P Gross gas production - PMT (mmscmd) Gross gas production - KG-D6 (mmscmd) Gross gas production - CBM (mmscmd) Total RIL net gas production (mmscmd) KG-D6 gas price (USD/mmbtu) Shale Gas RIL share of US shale gas production (mmscmd) US shale gas price (USD/mmbtu) Financial assumptions Average Interest rate (%) Capex (INR bn) Debt (INR bn) ,004 Cash conversion cycle (days) Income statement (INR mn) Year to March FY12 FY13 FY14E FY15E Net revenue 3,585,010 3,970,620 4,202,015 4,261,180 Materials costs 2,981,910 3,322,500 3,533,282 3,504,796 Gross profit 603, , , ,385 Operating expenses 258, , , ,807 EBITDA 345, , , ,578 Depreciation & Amortization 124, , , ,926 EBIT 221, , , ,652 Other income 61,940 78,000 77,623 69,262 Interest expenses 28,930 34,630 34,761 32,643 Profit before tax 254, , , ,271 Provision for tax 56,910 53,310 55,033 73,352 Net profit 197, , , ,919 Profit after minority interest 197, , , ,636 Shares outstanding (mn) 2,979 2,922 2,922 2,922 Diluted EPS (INR) Dividend per share (INR) Dividend payout (%) Common size metrics Year to March FY12 FY13 FY14E FY15E Gross margin EBITDA margins EBIT margins Net profit margins Growth ratios (%) Year to March FY12 FY13 FY14E FY15E Revenues EBITDA (9.3) (4.2) Net profit EPS Edelweiss Securities Limited

11 Reliance Industries Balance sheet (INR mn) As on 31st March FY12 FY13E FY14E FY15E Equity capital 29,790 29,224 29,224 29,224 Reserves & surplus 1,664,660 1,795,375 1,987,502 2,205,134 Shareholders funds 1,694,450 1,824,598 2,016,726 2,234,358 Minority interest (BS) 7,990 7,890 8,014 8,297 Short term debt 270, , , ,479 Long term debt 653, , , ,648 Borrowings 924, , ,935 1,004,127 Deferred tax liability 115, , , ,614 Sources of funds 2,742,480 2,886,705 3,073,739 3,354,396 Tangible assets 1,031,690 1,028,866 1,058,254 1,230,263 Intangible assets 356, , , ,544 CWIP (incl. intangible) 253, , , ,691 Total net fixed assets 1,641,770 1,701,284 1,894,599 2,236,498 Non current investments 114, , , ,230 Current Investments 271, , , ,730 Cash and equivalents 407, , , ,679 Inventories 466, , , ,352 Sundry debtors 169, , , ,658 Loans and advances 164, , , ,042 Other current assets 35,610 30,517 27,970 34,730 Total current assets 1,244,180 1,497,139 1,540,349 1,485,462 Trade payable 403, , , ,789 Others current liabilities 125, , , ,734 Total current liabilities & 529, , , ,523 Net current assets (ex cash) 307, , , ,259 Uses of funds 2,742,480 2,886,705 3,073,739 3,354,396 Book value per share (INR) Free cash flow (INR mn) Year to March FY12 FY13E FY14E FY15E Net profit 197, , , ,636 Depreciation 124, , , ,926 Deferred tax 4,650 (3,614) (2,992) (1,450) Others (13,590) (31,485) (42,738) (36,336) Gross cash flow 312, , , ,776 Less: Changes in WC 67,480 15,247 (34,037) 10,610 Operating cash flow 244, , , ,167 Less: Capex 163, , , ,256 Free cash flow 81,020 94,734 22,221 (134,089) Cash flow metrics Year to March FY12 FY13E FY14E FY15E Operating cash flow 244, , , ,167 Investing cash flow (63,010) (96,750) (238,777) (399,994) Financing cash flow (75,900) (104,550) (72,088) (7,024) Net cash flow 105,920 69,464 27,757 (71,851) Capex (163,810) (176,031) (316,401) (469,256) Dividends paid (29,410) (33,431) (35,288) (37,023) Profitability & efficiency ratios Year to March FY12 FY13E FY14E FY15E ROAE (%) ROACE (%) Inventory day Debtors days Payable days Cash conversion cycle (days) Net Debt/Equity Operating ratios Year to March FY12 FY13E FY14E FY15E Total asset turnover Fixed asset turnover Equity turnover Valuation parameters Year to March FY12 FY13E FY14E FY15E Diluted EPS (INR) Y-o-Y growth (%) CEPS (INR) Diluted PE (x) Price/BV (x) EV/EBITDA (x) Dividend yield (%) Peer comparison valuation Market cap Diluted PE (X) EV/EBITDA (X) ROAE (%) Name (USD mn) FY14E FY15E FY14E FY15E FY14E FY15E Reliance Industries 45, Cairn India 9, Essar Oil 1, Indian Oil Corporation 12, ONGC 49, Median AVERAGE Source: Edelweiss research 11 Edelweiss Securities Limited

12 Oil, Gas and Services Additional Data Directors Data Mukesh D Ambani Chairman and Managing Director P M S Prasad Executive Director Pawan Kumar Kapil Executive Director Hital R Meswani Executive Director Nikhil R Meswani Executive Director Mahesh P Modi Non Executive Director Mansingh L Bhakta Non Executive Director Ramniklal H Ambani Non Executive Director Raghunath A Mashelkar Non Executive Director Dharam Vir Kapur Non Executive Director Dipak C Jain Non Executive Director Yogendra P Trivedi Non Executive Director Ashok Misra Non Executive Director Auditors - Chaturvedi & Shah, Deloitte Haskins & Sells, Rajendra & Co Holding - Top10 Perc. Holding Perc. Holding Life Insurance Corporation Of India 7.98 Franklin Resources 1.76 Vanguard Group Inc 1.49 Govt Of Singapore Inv Corp Pte 1.11 Janus Capital Management Llc 0.97 Dimensional Fund Advisors 0.76 Blackrock 0.70 UTI Asset Management Co Ltd 0.35 Norges Bank 0.35 Bank Of New York Mellon Corp 0.28 *as per last available data Bulk Deals Data Acquired / Seller B/S Qty Traded Price No Data Available *in last one year Insider Trades Reporting Data Acquired / Seller B/S Qty Traded No Data Available *in last one year 12 Edelweiss Securities Limited

13 RATING & INTERPRETATION Company Absolute reco Relative reco Relative risk Company Absolute reco Relative reco Relative Risk Aban Offshore REDUCE SU H Bharat Petroleum Corporation BUY SO M Cairn India HOLD SO M Chennai Petroleum Corporation BUY SO H Essar Oil BUY SO H GAIL (INDIA) HOLD SP L Gujarat State Petronet HOLD SP M Hindustan Petroleum Corporation BUY SO L Indian Oil Corporation BUY SO M Indraprastha Gas BUY SO M ONGC BUY SO L Petronet LNG BUY SO L Reliance Industries BUY SO M ABSOLUTE RATING Ratings Expected absolute returns over 12 months Buy More than 15% Hold Between 15% and - 5% Reduce Less than -5% RELATIVE RETURNS RATING Ratings Sector Outperformer (SO) Sector Performer (SP) Criteria Stock return > 1.25 x Sector return Stock return > 0.75 x Sector return Stock return < 1.25 x Sector return Sector Underperformer (SU) Stock return < 0.75 x Sector return Sector return is market cap weighted average return for the coverage universe within the sector RELATIVE RISK RATING Ratings Low (L) Medium (M) High (H) Criteria Bottom 1/3rd percentile in the sector Middle 1/3rd percentile in the sector Top 1/3rd percentile in the sector Risk ratings are based on Edelweiss risk model SECTOR RATING Ratings Overweight (OW) Equalweight (EW) Criteria Sector return > 1.25 x Nifty return Sector return > 0.75 x Nifty return Sector return < 1.25 x Nifty return Underweight (UW) Sector return < 0.75 x Nifty return 13 Edelweiss Securities Limited

14 Oil,Gas and Services Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai Board: (91-22) , Vikas Khemani Head Institutional Equities Nischal Maheshwari Co-Head Institutional Equities & Head Research Nirav Sheth Head Sales Coverage group(s) of stocks by primary analyst(s): Oil,Gas and Services Aban Offshore, Bharat Petroleum Corporation, Cairn India, Essar Oil, GAIL (INDIA), Gujarat State Petronet, Hindustan Petroleum Corporation, Indraprastha Gas, Indian Oil Corporation, Chennai Petroleum Corporation, ONGC, Petronet LNG, Reliance Industries Recent Research Date Company Title Price (INR) Recos 23-May-13 Indraprastha Gas Lower volume growth boosts profit; Result Update 22-May-13 Oil and Gas Export parity pricing Why we see it unlikely; Sector Update 13-May-13 Essar Oil Operationally sound; Result Update 281 Buy 84 Buy Distribution of Ratings / Market Cap Edelweiss Research Coverage Universe Buy Hold Reduce Total Rating Interpretation Rating Expected to Rating Distribution* *- stocks under review > 50bn Between 10bn and 50 bn < 10bn Market Cap (INR) Buy Hold Reduce appreciate more than 15% over a 12-month period appreciate up to 15% over a 12-month period depreciate more than 5% over a 12-month period 14 Edelweiss Securities Limited

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