Weekender March 30 th, 2012

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1 Weekender March 30 th, 2012 Index Closing Chg Chg(%) Sensex % Nifty % Auto % Bankex % Cap Goods % Cons Durables % FMCG % Healthcare % IT % Metal % Oil & Gas % Power % Realty % World Index Closing Chg(`) Chg(%) Dow Jones % Nasdaq % Hang Seng % Nikkei % FTSE % Brazil Bovespa % Russia RTS % Mexico Bolspa % Singapore Strait % As on Friday 4pm Top Gainers Closing Chg(`) Chg(%) Ranbaxy Labs % Pidilite Inds % United Spirits Ltd % Dish TV India Ltd % Shree Cement % As on 30th March,12 Top Losers Closing Chg(`) Chg(%) Manappuram Finance % Muthoot Finance % Gitanjali Gems % HDIL % IndiabullsFinService % As on 30th March,12 Metal Closing Chg Chg(%) Gold($/oz) % Silver($/oz) % Aluminium($/MT) % Copper($/MT) % Lead($/MT) % Zinc($/MT) % As on Friday 4pm Date DII(cash) FII(Cash) FII(FO) 26-Mar Mar Mar Mar-12 NA Mar-12 NA NA- Not Available HD- Holiday ADR's Closing Chg($) Chg(%) Infosys % ICICI Bank % HDFC BANK % Tata Motors % Wipro % As on Thursday SNAP SHOT During the week ended 30 th March 2012, the key benchmark indices rallied to one-week highs on the last day of the trading week after Finance Minister said holders of participatory notes, or P-notes, will have no tax liability in India. The market may remain volatile in a truncated week ahead being 5 th April and 6 th April 2012are holidays. Automobile and cement shares will be in focus as companies from these two sectors start unveiling monthly sales volume data for March 2012 from 1 April HSBC's monthly purchasing managers' index (PMI), which indicates the health of the manufacturing sector, is likely to be released on Monday, 2 nd April HSBC's monthly Business Activity Index, which indicates the health of the services sector, is also due next week. The next major trigger for the market is 4QFY12E earnings. Investors will focus on the guidance provided by the management for the FY13E to gauge the earnings outlook. Infosys will announce its 4QFY12 results on 13 April Investors will closely watch clarification from the government on General Anti-Avoidance Rules (GAAR). Finance Minister said on 30 March 2012, that the government doesn't intend to levy any tax on the holders of Participatory Notes (P-Notes). He also said that a clarification on the matter would be issued by the Government in due course and that the Centre has no intention of harassing genuine overseas investors. A lack of clarity on taxation of P-notes has contributed to the recent volatility in the domestic share market Nifty Mar 26-Mar 27-Mar 28-Mar 29-Mar 30-Mar Global Economic Update United States: US Mortgage Bankers Association s Index decreased by 2.7% For the week ended March 23, 2012 compared to prior week fall of 7.4%. The group refinancing gauge decreased by 4.6% and purchases Index increased by 3.3% for the same period. US Real Gross Domestic Product (GDP) increased at an annual pace of 3.0% on QoQ basis for the fourth quarter of 2011.

2 GDR's Closing Chg($) Chg(%) RIL % SBI % L&T % Credit growth % Deposit growth % ECONOMIC CALENDAR Date Economic Data Previous 3-Apr Factory Orders -1.00% 4-Apr Total Vehicle Sales 15.03M 4-Apr MBA Mortgage Applications -2.70% 5-Apr Initial Jobless Claims 359K 5-Apr Continuing Claims 3340K 4-Apr PMI Services Apr Manufacturing Production (Y 0.30% 2-Apr PMI Manufacturing Apr Factory Orders YoY (nsa) -4.90% 2-Apr Vehicle Sales (YoY) 31.90% 5-Apr Banking Data 12/30/201 1(`Crs) UNITED STATES UNITED KINGDOM GERMANY JAPAN Chg(`Crs) Chg(%) Japan Buying Foreign Stocks B Initial jobless claims decreased by 5,000 to 359,000 from earlier week revised figure of 364,000 for the week ended March 24, Continuing claims decreased by 41,000 to million for the week ended March 17, 2012 from earlier revised claims of million of previous week. UK & Europe: Asia: UK current account deficit stood at 8.5 billion pounds for the fourth quarter of 2011 against revised 10.5 billion pounds recorded in third quarter. UK mortgage approvals decline to a 8 month low in month of February. Lenders granted 48,986 loans to buy home compared with revised 57,899 the previous month. Germany CPI increased 2.1% & 0.3% on YoY and MoM basis respectively for the month of March. Japan Jobless rate for the month of February was recorded at 4.5% against 4.6% recorded in month of February. Japan Investors were net sellers of foreign bonds and securities during the week ended Mar.16 having net sale of billion Yen. CURRENCY, CRUDE & G-SEC USD-JPY USD - INR Mar 27-Mar 28-Mar 29-Mar 30-Mar Mar 27-Mar 28-Mar 29-Mar 30-Mar Crude($/bbl) Mar 27-Mar 28-Mar 29-Mar 30-Mar Govt.Yield 8.60% 8.55% 8.50% 8.42% 8.39% 8.40% 8.29% 8.30% 8.24% 8.20% 2-Mar 9-Mar 16-Mar 23-Mar 30-Mar 2

3 PETRONET LNG LTD (Petronet) CMP (30/03/12): `168 Rec: BUY Target: `202 Upside: 20% Eq. Capital (FV `10): `750.0 Crs Market Cap: `12,600 Crs Shareholding: Promoters-50.0%, FII-25.2%, Public & Others-14.4%, FIs & MFs-10.6% 52-w H/L: `185.85/ COMPANY PROFILE Petronet LNG Ltd (Petronet) is formed by the Government of India to import Liquefied Natural Gas (LNG) and set up LNG Terminals in the country. It is a J.V of 2 Maharatna and 2 Navratna Oil & Gas Companies - ONGC, IOCL and BPCL, GAIL India, respectively each with a 12.5% stake, while GDF International (GDFI), a wholly owned subsidiary of Gaz de France (Europe's largest LNG importer) is the strategic partner with a 10% stake. Petronet is majorly into reception, storage & re-gasification of LNG. Petronet is India's dominant LNG player, accounting for more than three-fourth of the installed LNG capacity in the country. With the help of its 3 cryogenic vessels Raahi (138,077 cubic metres), Disha (138,097 cubic metres) and Aseem (154,000 cubic metres) the company receives LNG at its Dahej terminal, regasifies the LNG and then transmits it through gas transmission network of ONGC, IOCL, BPCL and GAIL to its customers. INVESTMENT POSITIVES Cost advantage over other form of fuels Over the years, Natural gas has emerged as the most preferred fuel due to its inherent environmentally benign nature, greater efficiency and cost effectiveness. The demand of natural gas has sharply increased in the last two decades at the global level. In India too, the natural gas sector has gained importance, particularly over the last decade, and is being termed as the Fuel of the 21 st Century. It is steadily replacing traditional fossil fuels due to its environment friendly characteristics which help in meeting the stipulated automobile emission norms. Natural Gas has significant cost advantages over fuels such as Naphtha, diesel and commercial LPG. Thus, the growing demand for the commodity from various sectors including power, fertilisers, refineries, petrochemicals, city gas distributors and sponge iron makers augur well for Petronet. Demand scenario looks very promising The demand for Natural gas is mainly driven by the increase in consumption in the Power and fertiliser industries. The government is promoting natural gas as the preferred fuel due to the new domestic discoveries of gas reserves, the relatively cheaper price compared to oil and its environment-friendliness. The sector is expected to witness rapid growth in the coming years and demand is expected to exceed increased domestic supplies. Sector-wise projected Gas demand - CY2012E Sector-wise projected Gas demand - CY2017E 5.7% 6.6% 6.4% Power Fertilizer 9.5% 3.9% 42.4% Petrochem - Refinery 10.3% 39.6% 20.9% City Gas Steel 12.7% 18.1% Others 24.0% Source: Company Presentation 3

4 MMSCMD Research Desk The gas deficit situation bodes well for LNG importers such as Petronet which are almost assured of a ready market. Burgeoning natural gas demand supply mismatch in the country makes it inevitable that the additional demand would be met by imported LNG. In addition the development of city gas distribution infrastructure is expected to boost gas demand as the cost effectiveness of LNG is expected to replace LPG and other traditional auto fuels. Supply Constraint > Widening Demand-Supply gap = Higher volume growth The supply constrain of natural gas from KG-D6 fields continue to support higher volumes from Petronet. Over the past year and half, gas output from the KG-D6 fields of Reliance Industries, which was expected to increase steadily, has instead been declining. The state-run Oil and Natural Gas Corp (ONGC) is also struggling to arrest declining production from its ageing field. This has led to many user industries turning to imported LNG to meet their existing and incremental requirements. Petronet has been able to make the most of this scenario as the availability of domestic gas is likely to dip to 123 million standard cubic metres per day (mscmd) in FY13E from 133 mscmd now. 600 Current Domestic Gas Demand & Supply scenario Demand Supply Source: Directorate General of Hydrocarbons (DGH), Company Presentation AGGRESSIVE EXPANSION PLANS doubling the capacity by 2015E Source: Company, LMSPL Research Dahej Terminal continues to operate at excess capacity all time high of ~115% in 3QFY12 Petronet s Dahej terminal that meets ~ 20% of India's total gas requirement is currently operating in excess of 10 million tonnes per annum (MTPA), from which, 7.5 MTPA is sourced through long-term contract with RasGas (Qatar) and additional LNG is being sourced through Spot /Short Term Contracts. Dahej terminal is well connected to major trunk pipelines Hazira-Bijaypur-Jagdishpur (HBJ), Dahej Uran pipeline (DUPL) and Gujarat State Petronet Ltd (GSPL). The existing pipeline network which is expected reach 15,000 kms by 2015 from current 10,700 kms will play a very vital role in the development of natural gas market in India. The company continues to utilize its Dahej terminal to the maximum with sales of Thousand British Thermal Units (TBTUs), thus capacity utilization stood at ~115% during 3QFY12, as against 106% in 2QFY12. The company expects it to perform at same or could be at higher utilization level in coming quarters Petronet's phase-wise expansion plans at its Dahej terminal from 10 MTPA to 15 MTPA is largely on track and progressing fast. This 2 nd terminal at Dahej, which should increase capacity to 12.5 MTPA, is expected to be completed by October 2013E, while the full expansion to 15 MTPA should be over by end of CY2015E. Notably, Petronet has already booked a large part of capacity expansions currently underway at its Dahej terminal. 4

5 Kochi Terminal to be commissioned by 3QFY14E achieved ~95% completion in 3Q12 Petronet 5 MTPA Kochi LNG terminal project has achieved completion of ~95% during 3QFY12. The company expects low capacity utilization in the initial years, with volume ramping up to 5 MTPA within 3-4 years from commissioning. Petronet proposes to source LNG under a long-term contract from Australia by 2015 for its Kochi terminal. About 1.5 MTPA would be purchased from Gorgan in Australia and sold to GAIL, BPCL and IOC. Besides it will also be a short-term arrangement. The management in 3QFY12 conference has indicated that liquid fuel based customers in the region are comfortable with current LNG prices (~US$14/ mbtu). We believe the Kochi terminal can help serve the Southern market where the landed cost of domestic gas is higher. With the commissioning of Kochi LNG Terminal, the market share of the company is expected to go up to ~25%. Typically, the company's terminals can operate at % of its nominal capacity, which gives it the necessary flexibility in importing spot cargos. Other Expansions 5 MTPA terminal on the East Coast + possibility of stake buy in overseas LNG projects Apart from the above expansions, Petronet is also considering setting up a 5 MTPA LNG terminal on the East Coast at Gangavaram in Andhra Pradesh. While the company currently has a long-term contract for sourcing 7.5 MTPA for its Dahej terminal and has tied up 1.5 MTPA for the Kochi terminal, it is in talks with players such as Qatar-based RasGas (existing supplier to Dahej plant) and Russia-based Gazprom to increase longterm supplies in the years ahead. Petronet is also looking at the possibility of acquiring a stake in potential LNG projects in Russia, specifically the Yamal project, and Africa. The company has also submitted a bid with ONGC and GAIL (India) for a minority stake in Russia s Yamal LNG project, which is set to start production of up to 16 MT of LNG a year in CY2016E. Looking at sourcing additional LNG imports from Qatar negotiations are on for long term contracts Petronet is seeking an extra 2-3 MTPA of LNG from the world s top exporter Qatar and the company is in negotiations for a long term contract. India is already the world s 8 th largest importer of LNG and the market for imported natural gas in the country is set to quadruple in value to nearly US$15 bn in a couple of years due to a huge surge in investments on facilities meant to process the fuel.(source: Company). Petronet LNG currently has a long term contract with Qatar's RasGas for its Dahej terminal, and with the Gorgon LNG project in Western Australia for its upcoming Kochi terminal, which is expected to start operations in October-December Recent Budget proposal of reduction of custom duty on LNG POSITIVE The Union Budget rang in a few positives for the company. The recent budget proposal of reduction of custom duty on LNG from 5% to NIL holds Positive for Petronet and GAIL as they import LNG. Apart from removing the customs duty on LNG imports, the budget also included oil and gas/lng storage facilities and gas pipelines as sectors eligible for viability gap funding (VGF). We believe the duty removal will reduce the cost of gas by $0.50 per million British thermal unit (mbtu). While Petronet is likely to pass through the full benefit to customers, lower prices should further boost demand at a time when the domestic gas production in under severe pressure. 5

6 Strong 3QFY12: Beats Street estimates Turnover of the company increased 75% y-o-y in 3QFY12 to ` Crs mainly due to higher volumes and better realizations (up 12.8% q-o-q and 56.9% y-o-y). Total re-gasification volume increased 21% on a y-o-y basis and 7% on q-o-q to TBTUs implying a capacity utilization of ~115% Out of total re-gasification volume- 98 TBTUs were from long-term supply, 25 TBTUs were for shortterm supply and 22 TBTUs were re-gasification done by GAIL and GSPC. The company is hopeful of sustaining volumes at 110% of capacity on a yearly basis. The company has earned marketing margin on short-term supply of gas of 22 TBTUs. Interest cost was lower 36% y-o-y for 3QFY12 compared to 3QFY11 to `34.47 Crs as company repaid `500 Crs of debt during the quarter (Current Debt outstanding at `3600 Crs). Strong Mutual Fund holdings at the end of Feb 2012 CONCERNS Proposed cap on the gas marketing margin could have an impact on its earnings, although marginally. Concerns of rising LNG prices (currently stand at ~US$14/ mbtu) and the challenges that the company would face in finding buyers at higher prices. VALUATION At the CMP of `168.0, the stock is trading at 9.9x its FY13E EPS of ` We recommend BUY on the stock with a months target price of `202, providing an upside of 20% from the current levels. 6

7 FINANCIALS Source: Company, Capitaline Registered Office: 124 Viraj, S,V.Road, Khar (W), Mumbai Tel. (022) , Fax (022) LMSPL Network: Fort, Mahalaxmi, Parel, Bandra, Santacruz, Vile Parle, Andheri, Malad, Kandivili, Borivali, Bhayender, Ghatkopar, Mulund, Chunabhatti, Jacob Circle, Masjid Bunder, Cotton Green, Thane, Bhiwandi, Panvel, Pune, Sholapur, Nasik, Malegoan, Ahmednagar, Aurangabad, Akola, Mahekar, Nagpur, Surat, Karjan(Baroda), Khambat, Ahmedabad, Rajkot, Surendranagar, Porbandar, Amreli, Bharuch, Anand, Chennai, Vishakhapatnam, Vizianagaram, Palasa, Kakinada, Karnal, Kolkatta, Bhubhaneshwar, Hyderabad, Bangalore, Jafrabad, Chital, Kodinar, Keshod, Gondal, Haryana, Srikakulam, Mehkar (Buldhana, Jamnagar, Bangalore, Jodhpur, Jalgaon, Malkangiri (Orissa), Karimnagar Dist. (Andhra Pradesh). This document is for information only and is meant for the use of the recipient & not for circulation. The information contained in this document has been taken from publicly available information, trade and statistical services & other sources. While the information contained herein is from sources believed to be reliable, we do not hold ourselves responsible for its completeness and accuracy. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice. Investors are expected to use the information contained in this report at their own risk. This report is not and should not be construed as an offer or the solicitation of an offer to buy or sell any securities. M/s Latin Manharlal Securities Pvt. Ltd. and it s affiliates may act as market maker or have assumed an underwriting position in the secureties of companies discussed herein and may sell them to or buy them from customers on a principal basis. 7