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India Infrastructure Trust.

BSE: 542543 Sector: Infrastructure
NSE: N.A. ISIN Code: INE05KD23015
BSE 16:01 | 25 Aug India Infrastructure Trust
NSE 05:30 | 01 Jan India Infrastructure Trust
OPEN 94.00
PREVIOUS CLOSE 94.00
VOLUME 5000000
52-Week high 94.00
52-Week low 0.00
P/E 8.03
Mkt Cap.(Rs cr) 6,242
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 94.00
CLOSE 94.00
VOLUME 5000000
52-Week high 94.00
52-Week low 0.00
P/E 8.03
Mkt Cap.(Rs cr) 6,242
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

India Infrastructure Trust. (INDIAINFRTRUST) - Director Report

Company director report

2 Executive Summary

2.1 Brief Background and Purpose

2.1.1 India Infrastructure Trust ("the Trust" or "InvIT")is a contributory irrevocable trust set up under the provisions of the Indian Trusts Act1882. This Trust has been set up on November 22 2018.

2.1.2 The Trust is an infrastructure investment trust registered onJanuary 23 2019 under the SEBI InvIT Regulations having registration numberIN/InvIT/18-19/0008. The Trust was set up in order to invest in infrastructure projects inaccordance with the SEBI InvIT Regulations.

2.1.3 The initial portfolio asset of the Trust is the Pipeline. ThePipeline was earlier owned by EWPL and pursuant to the Scheme of Arrangement between EWPLand PIL as sanctioned by NCLT Mumbai vide order dated December 21 2018 and NCLTAhmedabad vide order dated November 12 2018 was transferred to PIL. Currently the Trustholds 100% of equity share capital of PIL.

2.1.4 The Trust the Investment Manager Reliance Industries HoldingPrivate Limited ("RIHPL") and PIL had entered into a Share PurchaseAgreement ("SPA") wherein the Trust acquired 100% of the issued andpaid-up equity share capital of PIL from RIHPL on the Completion Date i.e. March 22 2019("Transaction").

2.1.5 PIL operates a cross country natural gas pipeline with apipeline length of ~1480 kms (including dedicated lines) together with compressorstations and operation centres that stretches from Kakinada (Andhra Pradesh) to Bharuch(Gujarat) traversing through the states of Andhra Pradesh Telangana KarnatakaMaharashtra and Gujarat (the asset is referred as "Pipeline" and activityof operating the Pipeline is referred as "Pipeline Business").Historically the Pipeline Business has been owned and operated by EWPL.

2.1.6 PIL and RIL have entered into a Pipeline Usage Agreement ("PUA")on March 19 2019 and amendments thereto pursuant to which RIL will make agreed paymentson a quarterly basis in order to reserve certain capacity in the Pipeline fortransportation of gas.

2.1.7 As per regulation 21(4) of SEBI InvIT Regulations -

 

"A full valuation shall be conducted by the valuer not less thanonce in every financial year. Provided that such full valuation shall be conducted at theend of the financial year ending March 31st within two months* from the date ofend of such year. "

* Extended by 1 month by SEBI vide circular:SEBI/HO/DDHS/DDHS_Div3/P/CIR/2021/563 dated May 14 2021

2.1.8 In this regard the IM has appointed the Valuer to undertake thevaluation of InvIT Asset in compliance of the above SEBI InvIT Regulation. ("Purpose").

2.2 Valuation Methodology Adopted

2.2.1 Considering the nature of business and information availableInvIT Asset has been valued using Discounted Cash Flow ("DCF") Methodunder Income Approach. We have used Free Cash Flow to Equity ("FCFE")model under the DCF Method to arrive at the value of InvIT Asset.

2.2.2 For the purpose of arriving at the valuation of the InvIT Assetwe have considered the valuation base as ‘Fair Value' and the premise of valueis ‘Going Concern Value'. Any change in the valuation base or the premise couldhave significant impact on our valuation exercise and therefore this report.

2.3 Valuation Conclusion

2.3.1 The tariff as approved by PNGRB vide order dated March 12 2019considered for valuation of InvIT Asset is INR 71.66 per mmbtu.

2.3.2 The fair enterprise value of InvIT Asset pursuant to the agreedterms of the Transaction Documents is arrived at INR 138559.9 Mn.

3 Introduction

3.1 Terms of Engagement

3.1.1 We BDO Valuation Advisory LLP having LLP identification numberAAN-9463 and IBBI Registration number IBBI/RV-E/02/2019/103 have been appointed byInvestment Manager to determine the fair enterprise value of InvIT Asset on a goingconcern basis as per SEBI InvIT Regulations.

3.1.2 This Report has been prepared by the Valuer pursuant to terms ofengagement letter dated April 1 2021 between the Valuer and the Investment Managerincluding the terms and conditions set out therein.

3.2 Background and Purpose of Valuation

3.2.1 The Trust is a contributory irrevocable trust set up under theprovisions of the Indian Trusts Act 1882 on November 22 2018.

3.2.2 The Trust is an infrastructure investment trust registered onJanuary 23 2019 under the SEBI InvIT Regulations having registration numberIN/InvIT/18-19/0008. The Trust was set up in order to invest in infrastructure projects.

3.2.3 The initial portfolio asset of the Trust is a pipeline used forthe transportation of natural gas with the potential to induct new assets in due course.The Pipeline is a cross-country natural gas pipeline with a pipeline length ofapproximately 1480 km (including dedicated lines) together with compressor stations andoperation centres that stretches from Kakinada Andhra Pradesh in the east of India toBharuch Gujarat in the west of India traversing adjacent to major cities in the statesof Andhra Pradesh Telangana Karnataka Maharashtra and Gujarat. Historically thePipeline was owned and operated by EWPL.

3.2.4 The Pipeline has been transferred from EWPL to PIL with effectfrom the Appointed Date pursuant to a Scheme of Arrangement that has been sanctioned bythe National Company Law Tribunal Bench at Ahmedabad and the National Company LawTribunal Bench at Mumbai (together the "NCLTs") on November 12 2018 andDecember 21 2018 respectively (the "Scheme of Arrangement" or "Scheme").Currently the Trust beneficially holds 100% of the equity share capital of PIL.

3.2.5 PIL and RIL have entered into a pipeline usage agreement ("PipelineUsage Agreement" or "PUA") dated March 19 2019 and amendmentsthereto pursuant to which RIL has agreed to make payments to PIL on a quarterly basis inorder to reserve certain annual capacity of the Pipeline.

3.2.6 Rapid Holdings 2 Pte. Ltd ("Sponsor") is thesponsor of the Trust Brookfield India Infrastructure Manager Private Limited is theInvestment Manager of the Trust and Axis Trustee Services Limited is the Trustee of theTrust.

3.2.7 ECI India Managers Private Limited as the project manager (the"Project Manager") are responsible for the execution and management ofthe projects.

3.2.8 The Project Manager PIL and Pipeline Management Services PrivateLimited (the "Contractor") have entered into an agreement for theprovision of certain operations and maintenance services by the Contractor in respect ofthe Pipeline ("O&M Agreement").

3.2.9 In accordance with the sub-contracting provision in the O&MAgreement the Contractor PIL and Reliance Gas Pipelines Limited (the "Sub-Contractor")have entered into an operations and maintenance sub-contract agreement (the "O&MSub-Contract Agreement") for the operation and maintenance of a section of thePipeline.

3.2.10 Framework Agreement recorded the understanding among the partiesfor among others (1) transfer of the entire issued equity share capital of PIL to theTrust; (2) subscription by the Trust to the Non-Convertible Debentures issued by PIL("PIL NCDs"); (3) transfer of the Pipeline Business from EWPL to PILpursuant to the Scheme of Arrangement; and (4) repayment of the unsecured liability of INR164000 million.

3.2.11 PIL SHA sets out rights and obligation of parties to theagreement in relation to PIL including those of the Trust as the equity shareholder ofPIL and the holder of the PIL NCDs and of RIL and the Trust in relation to the purchaseand transfer of the equity shares of PIL under certain circumstances and the manner ofdistribution of cash flows of PIL and the terms of the redeemable preference shares incompliance with applicable law.

3.2.12 Shared Service Agreement sets out the terms for RIL to providePIL and the Contractor with certain identified services in connection with the PipelineBusiness for a period of three years in order to enable business continuity seamlessoperations and an effective cost structure of the Pipeline Business pursuant to thedemerger of the Pipeline Business from EWPL to PIL.

3.2.13 SSA records the understanding among various parties with respectto issue allotment and subscription of the CCPS.

3.2.14 Infrastructure Sharing Agreement sets out the terms forpermitting sub-contractor's nonexclusive access to certain facilities ofSub-contractor which are laid on the Pipeline's right of usage area and areco-located with the Pipeline facilities;

3.2.15 Joint Venture Agreement records the understanding among variousparties which include operation of and maintenance of Pipeline on behalf of PIL and theProject Manager.

3.2.16 DTD Agreement provides the terms and conditions and stipulations(pursuant to which the Debentures with issue amount of INR 64520 Mn were issued) as wellas their respective obligations in respect of the issuance.

3.2.17 The units of the Trust are listed on BSE by way of privateplacement.

3.2.18 In line with the Purpose mentioned earlier the IM has appointedBDO Valuation Advisory LLP to undertake the valuation of InvIT Asset in compliance of theSEBI InvIT Regulations.

3.2.19 This Report should not be used or relied upon for any otherpurpose. The suitability or applicability of this Report for any purpose other than thatmentioned above has not been verified by the Valuer.

3.3 Source of Information

3.3.1 For the purpose of this valuation exercise we have relied on thefollowing sources of information:

i. Brief note on the operations of Pipeline Business;

ii. Tariff order for determination of Final Initial Unit Natural GasPipeline Tariff by PNGRB dated March 12 2019;

iii. Audited Financial statements of Pipeline Infrastructure Limitedfor the year ended March 31 2019 March 31 2020 and March 31 2021;

iv. Volumes transported by PIL from April 2020 to March 2021;

v. Income Tax Return of PIL for Assessment Year 2020-21 and draftcomputation of income of PIL for Assessment Year 2021 -22;

vi. Framework Agreement amongst RIHPL and the Sponsor and the IM andPIL dated August 28 2018;

vii. Scheme of Arrangement between EWPL and PIL and their RespectiveShareholders and Creditors for transfer of Pipeline Business from EWPL to PIL;

viii. Joint Venture Agreement dated February 11 2019 entered intobetween the Project Manager RIL and the Contractor and First Amendment Agreement datedApril 22 2019 to the Joint Venture Agreement;

ix. PIL SHA dated February 11 2019 amongst PIL EWPL IM Trust andRIL and First Amendment Agreement dated March 9 2019 to the PIL SHA and Second AmendmentAgreement dated April 22 2019 to the PIL SHA;

x. SPA dated February 11 2019 amongst RIHPL Trust IM and PIL andAmendment Agreement dated April 22 2019 to SPA;

xi. SSA dated February 11 2019 amongst PIL RIIHL and Trust;

xii. O&M Agreement dated February 11 2019 amongst PIL Contractorand Project Manager;

xiii. O&M Sub-Contract Agreement dated February 11 2019 amongstPIL Contractor SubContractor;

xiv. PUA executed between PIL and RIL on March 19 2019 AmendmentAgreement dated April 22 2019 to the PUA and Clarificatory note to PUA dated December 242019;

xv. Shared Service Agreement February 11 2019 amongst PIL RIL and theContractor and First Amendment Agreement dated April 22 2019 to the Shared ServiceAgreement;

xvi. Infrastructure Sharing Agreement dated February 11 2019 betweenContractor SubContractor and PIL;

xvii. Debenture Trust Deed dated April 16 2019 between PIL And IDBITrusteeship Services Limited;

xviii. Copy of Orders approving the Scheme of Arrangement by theNational Company Law Tribunal Bench at Ahmedabad and the National Company Law TribunalBench at Mumbai vide orders dated November 12 2018 and on December 21 2018respectively;

xix. EWPL Due Diligence Abridged Report issued by Wood Mackenzie datedMarch 23 2021 and related excel workings ("Wood Mackenzie Report");

xx. Virtual Inspection with respect to the Pipeline over video call.Considering the current situation of COVID-19 it was not practical to undertake physicalinspection as required under Regulation 21(2) of SEBI InvIT Regulations;

xxi. Projected revenue expenditure and capital expenditure foroperations of PIL for period starting from April 1 2021 to March 22 2039;

xxii. Estimates of working capital of PIL for period starting fromApril 1 2021 to March 22 2039;

xxiii. List of one-time sanctions/approvals which are obtained orpending in relation to the Pipeline and list of up to date/ overdue periodic clearances inrelation to the Pipeline as on the Valuation Date;

xxiv. Details of material litigations in connection with the Pipelineas on the Valuation Date;

xxv. FICCI Report titled "India Gas Infrastructure Indian GasSector - Ushering in an era of Growth" dated December 2019 prepared by FICCI'sknowledge partner Ceresta Business Consulting ("FICCI Report").

xxvi. PNGRB report by industry group titled "Vision 2030 - NaturalGas Infrastructure in India Report" available athttp://www.pngrb.gov.in/Hindi-Website/pdf/vision-NGPV-2030- 06092013.pdf ("PNGRBReport").

xxvii. Other relevant data and information provided to us by theManagement whether in oral or physical form or in soft copy and discussions with theirrepresentatives; and

xxviii. Information available in public domain and provided by leadingdatabase sources.

4 Caveats Limitations and Disclaimers

4.1 Restricted Audience:

4.1.1 This Report and the information contained herein are absolutelyconfidential and are intended for the use of the IM and the Trust in connection with thePurpose set out in the Report.

4.1.2 It should not be copied disclosed circulated quoted orreferred to either in whole or in part in correspondence or in discussion with any otherperson except to whom it is issued without our written consent. It can however be reliedupon and disclosed in connection with any statutory and regulatory filing with SEBI BSELimited or any other regulatory /statutory authority as per the SEBI InvIT Regulationswithout any consent in connection with the Purpose mentioned earlier. This Report and theextracts of this Report included herein can be reproduced and used for filings with SEBIBSE and any other statutory authority as required by the law. In the event the IM or theTrust extend the use of the Report beyond the purpose mentioned earlier in the Reportwith or without our consent we will not accept any responsibility to any other party(including but not limited to the investors if any) to whom this Report may be shown orwho may acquire a copy of the Report.

4.1.3 It is clarified that this Report is not a fairness opinion underany of the stock exchange / listing regulations. In case of any third party having accessto this Report please note that this Report is not a substitute for the thirdparty's own due diligence / appraisal / enquiries / independent advice that the thirdparty should undertake for its purpose.

4.2 Caveats Limitations and Disclaimer :

4.2.1 The Report is subject to the limitations detailed hereinafter.This Report is to be read in totality and not in parts in conjunction with the relevantdocuments referred to therein.

4.2.2 This Report its contents and the results herein are (i) specificto the purpose of valuation agreed as per the terms of our engagement; (ii) the ValuationDate and (iii) are based on the data detailed in the Section 3.3 - Sources of Information.

4.2.3 We were provided with sufficient information and time to make ouropinion for this valuation exercise. However our opinion may change if any materialinformation is not disclosed / hidden from us during our valuation exercise.

4.2.4 The scope of the assignment did not include performing audittests for the purpose of expressing an opinion on the fairness or accuracy of anyfinancial or analytical information that was used during the course of the work. Furtherconducting a financial or technical feasibility study was also not covered.

4.2.5 During the course of this work we have relied upon assumptionsand projections as provided by Management. These assumptions require exercise of judgmentand are subject to uncertainties.

4.2.6 Further this Report is based on the extant regulatoryenvironment and the financial economic monetary and business/market conditions and theinformation made available to us or used by us up to the date hereof which are dynamicin nature and may change in future thereby impacting the valuation of InvIT Asset.Subsequent developments in the aforementioned conditions may affect this Report and theassumptions made in preparing this

Report and we shall not be obliged to update review or reaffirm thisReport if the information provided to us changes. The information presented in thisvaluation Report does not reflect the outcome of any due diligence procedures which maychange the information contained herein and therefore the valuation Report materially.Further events occurring after the date hereof may affect this Report and the assumptionsused in preparing it and we do not assume any obligation to update revise or reaffirmthis Report.

4.2.7 The recommendation contained herein is not intended to representvalue at any time other than the Valuation Date.

4.2.8 This Report is subject to the laws of India.

4.2.9 Valuation is not a precise science and the conclusions arrived atin many cases will of necessity be subjective and dependent on the exercise of individualjudgment as the valuation analysis is governed by the concept of materiality. There istherefore no indisputable single value. While we have provided an assessment of the valuebased on an analysis of information available to us and within the scope of ourengagement others may place a different value on the businesses.

4.2.10 Valuation is based on estimates of future financial performanceor opinions which represent reasonable expectations at a particular point in time butsuch information estimates or opinions are not offered as predictions or as assurancesthat a particular level of income or profit will be achieved a particular event willoccur or that a particular price will be offered or accepted. Actual results achievedduring the period covered by the prospective financial analysis will vary from theseestimates and the variations may be material.

4.2.11 The realization of these projections is dependent on thecontinuing validity of the assumptions on which they are based. Since the projectionsrelate to the future actual results are likely to be different from the projected resultsin case of events and circumstances not occurring as projected and the differences may bematerial. The Valuer's work did not constitute a validation of the financialprojections of the InvIT Asset under consideration and accordingly the Valuer does notexpress any opinion on the same however the Valuer has reviewed the financial forecastfor consistency and reasonableness and relied on them. The Valuer has not commented on theappropriateness of or independently verified the assumptions or information provided tous for arriving at the financial projections. Further while the Valuer has discussed theassumptions and projections with the Management our reliance on them for the purpose ofvaluation should not be construed as an assurance about the accuracy of the assumptions orthe achievability of the financial projections.

4.2.12 This Report is based on information received from sourcesmentioned herein and discussions with the Management. We have assumed that the partiesinvolved have furnished to us all information which they are aware of concerning thefinancial statements and respective liabilities which may have an impact on our Report.

4.2.13 We have not done any independent technical valuation orappraisal or due diligence of the assets or liabilities of the Trust or PIL or any ofother entity mentioned in this Report and have considered them at the value as disclosedby the Trust and PIL in their regulatory filings or in submissions oral or written madeto us. Nothing has come to our knowledge to indicate that the material provided to us wasmisstated or incorrect or would not afford reasonable grounds upon which to base ourReport.

4.2.14 We have not made any independent verification with respect tothe PIL's claim to title of assets or property (including the Pipeline) for thepurpose of this valuation. With respect to claim to title of assets or property we havesolely relied on representations whether verbal or otherwise made by the Management tous for the purpose of this Report.

4.2.15 Except to the extent required under the SEBI InvIT Regulationswe are not responsible for matters of legal nature including issues of legal title andcompliance with local laws in respect of PIL and also no consideration has been given tolitigation and other contingent liabilities that are not recorded in the financial of PIL.

4.2.16 The fee for the Report is not contingent upon the outcome of theReport.

4.2.17 This Report does not look into the business / commercial reasonsbehind any transaction nor the likely benefits arising out of the same. Similarly it doesnot address the relative merits of investing in InvIT as compared with any otheralternative business transaction or other alternatives or whether or not suchalternatives could be achieved or are available. The assessment of commercial andinvestment merits of the Trust are sole responsibility of the investors of the Trust andwe do not express any opinion on the suitability or otherwise of entering into anyfinancial or other transactions with the Investment Manager the Trust or PIL.

4.2.18 In rendering this Report we have not provided any legalregulatory tax accounting actuarial advice and accordingly we do not assume anyresponsibility or liability in respect thereof.

4.2.19 For the present valuation exercise we have also relied uponinformation available in the public domain; however the accuracy and timeliness of thesame has not been independently verified by us.

4.2.20 In the particular circumstances of this case we shall be liableonly to the IM and the Trust. We shall have no liability (in contract or under statute orotherwise) to any other party for any economic loss or damage arising out of or inconnection with this engagement however the loss or damage is caused as laid out in theengagement letter for such valuation work.

4.2.21 Whilst all reasonable care has been taken to ensure that factsstated in the Report are accurate and opinions given are fair and reasonable neither usnor any of our Partners or Employees shall in any way be responsible for the contentsstated herein. Accordingly we make no representation or warranty express or implied inrespect of the completeness authenticity or accuracy of such statements. We expresslydisclaim any and all liabilities which may arise based upon the information used in thisReport.

4.2.22 The estimate of value contained herein are not intended torepresent value of the InvIT Asset at any time other than the dates specifically mentionedfor each valuation result as per the agreed scope of engagement and as required under theSEBI InvIT Regulations.

4.2.23 Please note that the valuation has been performed as of March31 2021 and reflects the information available as of that date. Economic conditionsmarket factors and performance change may result in our conclusions becoming quicklyoutdated particularly due to the significant unforeseen impact of the COVID-19 pandemic.

4.2.24 Valuation results and underlying projections and assumptionsused for valuation may be materially affected by increased volatility in current andfuture economic political regulatory financial market or other circumstances as aresult of COVID-19 and accordingly higher degree of caution should be attached to thevaluation than may normally be the case.

5 Assignment Approach

The overall approach that we have followed to arrive at value of InvITAsset is summarized below:

i. In the initial stage we requested for detailed information requiredfor valuation of InvIT Asset.

ii. We reviewed the information provided for understanding of thecurrent business operations and any changes since the past financial year and then hadvarious discussions with the Management to gain insight on the future business operations.

iii. We analyzed the additional information and business model receivedpost preliminary discussion. We had various discussions with the Management on thebusiness model assumptions considered and future business outlook. We also reviewed theWood Mackenzie Report.

iv. We obtained various disclosures from the Management pertaining toapprovals and litigations of the InvIT Asset as required under the SEBI InvIT Regulations.

v. Virtual Site visit was conducted on May 12 2021 of CompressorStation (CS - 3) situated near Nalagonda Telangana.

Considering the current situation of COVID-19 it was not practical toundertake physical inspection as required under Regulation 21(2) of SEBI InvITRegulations hence we have undertaken a virtual site visit through video call.

vi. We carried out the valuation based on internationally acceptedvaluation methodology international valuation standards and applicable Valuation Standardissued by ICAI and considering the information provided to us.

6 Overview of Pipeline Business

6.1 Pipeline

6.1.1 The Pipeline is a cross country natural gas pipeline with apipeline length of ~1480 kms (including dedicated lines) together with compressorstations and operation centres that stretches from Kakinada (Andhra Pradesh) to Bharuch(Gujarat) traversing through the states of Andhra Pradesh Telangana KarnatakaMaharashtra and Gujarat.

6.1.2 The Pipeline comprises of trunk pipeline compressor stationsmainline sectionalizing valve stations tap-off stations spur lines metering andregulating stations and pipeline operation centres.

6.1.3 Total 37 Mainline Sectionalizing Valve ("MLV") stationsare installed along the Pipeline route so as to allow isolation of a section of Pipelinein event of an emergency and/or repairs.

6.1.4 There are 11 Compressor Stations ("CS") installeden-route the Pipeline to receive gas supplies at On-shore Terminal ("OT") boostpressure along the way and to deliver the gas at required pressure to the downstreampipelines.

6.1.5 The CS houses the facilities like gas turbine compressors gasengine generators gas after coolers pigging receiver and launchers electricalsub-station and other utilities like diesel generators firefighting equipment and storageetc.

6.1.6 The Pipeline has interconnects for receipt and delivery of gasconnecting to source and other cross-country pipelines such as DVPL / DUPL / GSPL-HP &KG Basin networks. Metering and regulating stations are located at these inter-connectsand at customer locations. Tap-offs are also provided for new connections at regularintervals.

6.1.7 For managing the operations of the pipeline main operationcentre is located at CS01 Gadimoga Andhra Pradesh and backup operations centre is locatedat CS08 Kalyan Thane Local Control Centre has been provided at every Compressor Stationsen-route the pipeline. Maintenance bases along with warehouse facilities have been set upat CS-03 and CS-08 apart from first level maintenance facilities provided at each of thecompressor station en-route the pipeline.

6.1.8 Gas accounting for the pipeline is done in energy terms (i.e.gross heating value - GHV).

6.2 Route Map of the Pipeline

6.2.1 Above map reflects the route map of the Pipeline.

6.2.2 There are 11 Compressor Stations along the Pipeline ashighlighted in the map above.

6.2.3 Currently there are 4 Receipt/ Gas Intake Points and 10 Delivery/ Interconnects in the Pipeline which spreads across the states of Andhra PradeshTelangana Karnataka Maharashtra and Gujarat.

6.3 Business Model

6.3.1 The Company provides transportation services to customers fortransportation of gas from any particular entry point (i.e. source/ upstream pipeline) toany exit point (i.e. customer point/downstream pipeline).

6.3.2 The Pipeline usage capacity is booked by the customers for whicha Framework Gas Transportation Agreement (FGTA) is entered into between customers and PIL.FGTA provides for framework of general terms and conditions for transportation servicesrendered by PIL. After execution of FGTA Gas Transportation Agreement ("GTA")is entered into between customers and PIL for each of the specific transaction oftransportation. GTA incorporates the terms of the FGTA by reference.

6.3.3 The key terms included in the GTA are as follows:

Sr. No. Particulars Key Terms of GTA
I Tariff - Tariff Rate in INR/mmbtu as approved by PNGRB
II Terms - As mutually agreed between parties
III Ship or Pay - Monthly 90% of Maximum Delivery Quantity (MDQ) level
IV Payment Terms - Fortnightly invoicing
- Payments within 4 days of invoice
- Disputed amount will be paid in full pending dispute settlement
V Payment Security - Shipper shall provide LC covering 30xMDQx(Tariff + Taxes)
VI PIL Liability Cap - 50% of annual transportation charges
VII Planned Maintenance - Without liability for ship or pay and liquidated damages
- Total of 10 days annually allowed for transporter

6.3.4 Gas Parking services are also provided wherein the customer canrequest for temporary storage space in the Pipeline for a service charge. PIL would beoffering other value added imbalance management services in future in terms of the PNGRBregulations*.

6.3.5 PNGRB is a nodal agency to regulate and monitor the downstreamactivities notify regulations and monitor compliance. It is also responsible for grantingauthorization to build and operate pipelines and city gas distribution networks.

6.3.6 The regulations mandate that at least 25% of capacity should beavailable on a common carrier first cum first serve basis. Therefore upto 75% of thecapacity can be contracted.

 

* As per Petroleum and Natural Gas Regulatory Board (ImbalanceManagement Services) Third Amendment Regulations 2020 issued by notification datedNovember 23 2020

6.4 Tariff Determination as per Tariff Regulations

6.4.1 PNGRB has been authorized to regulate the tariff fortransportation of gas based on the tariff submitted by the transporters and theregulations prescribed for such determination.

6.4.2 The tariff for gas transportation is divided into various zonesof 300 km along the route of the natural gas pipeline from the point of entry till thepoint of exit as per the contract.

6.4.3 Initially a levelized tariff is determined for transportationthrough the entire gas pipeline post which the zonal tariffs are determined based onestimated volumes for various zones.

6.4.4 No subsequent tariff adjustment is allowed on account ofvariation in actual zonal volumes visa-vis the estimated zonal volumes.

6.4.5 The key factors considered while determination of tariff are asfollows:

Sr. No. Factors Stipulations
I Economic Life - 25 years
II Tariff Method - DCF ROCE @ 12% post tax
III Capex & Opex - Lower of Normative/Actual
IV Working Capital - 30 days opex and 18 days receivables
V System Use Gas - (Gas price + tariff ) x quantity
VI Volume for Tariff Fixation - Higher of Normative or Actual
- Normative Volumes are determined as under -
I -V years : 60% 70% 80% 90% 100% of 75% of
Capacity
Year VI Onwards: 75% of Capacity or firm contracted
volumes
whichever is higher
- Volume Adjustment in first five years is permitted
VII Capacity - As determined by PNGRB under relevant guidelines
VIII Tariff Overview - Initial tariff fixed for first year
- First regular tariff for next five years
- Subsequently fixed and reviewed every five years

6.4.6 In March 2020 PNGRB amended tariff regulations and incorporatedexplanation to consider lower nominal corporate tax rate for grossing up the allowedreturn in case more than one nominal corporate tax rates are available.

6.5 List of one-time sanctions/approvals which are obtained or pendingin relation to the Pipeline and list of up to date/ overdue periodic clearances:

6.5.1 Disclosed in Annexure III of the Report as per informationprovided by the Management. We have reviewed the validity of various sanctions/ approvals/clearances obtained with the documents provided to us by the Management.

6.6 Material Litigations/ Factors related to the Pipeline

6.6.1 We have been informed by the Management about the materiallitigations with respect to the Pipeline we have not independently reviewed thelitigations details. As per the Scheme for transfer of Pipeline from EWPL to PIL theliabilities in relation to the Pipeline are also transferred from EWPL to PIL. Hence wehave disclosed the litigation related to the Pipeline as per information provided to us bythe Management.

6.6.2 The details of the key litigations which may have bearing on thevaluation have been disclosed below and disclosure of other litigations as required underSEBI InvIT Regulations have been provided in Annexure IV.

6.6.3 Litigation related to Capacity Assessment

• PNGRB vide letter dated July 10 2014 declared the finalcapacity for FY11 and FY12 as 85 mmscmd and 95 mmscmd respectively ("Order I").

• EWPL filed an appeal on August 8 2014 against the Order Ibefore the APTEL.

• APTEL passed an order on July 8 2016 setting aside Order I interalia on the ground that there was a breach of principles of natural justice andremanded the matter back to PNGRB.

• Subsequently PNGRB vide its order dated December 30 2016declared capacity of Pipeline to be 85 mmscmd and 95 mmscmd for FY11 and FY12 respectively("Order II").

• EWPL filed an appeal before the APTEL for setting aside OrderII directing PNGRB to

declare the capacity for FY11 and FY12 and for the subsequent periodsi.e. FY13 to FY16 taking into account the change in parameters within a reasonable time.

• Pending decision of the appeal EWPL moved an interimapplication before APTEL for determining the capacity of EWPL as per Acceptance to theAuthorization letter issued by PNGRB as per Determination of Natural Gas Pipeline TariffRegulations - Amendment 2015. APTEL pending adjudication of the capacity appeal videorder dated November 20 2018 directed PNGRB to consider the capacity of EWPL as 85 MMSCMDfor the years 2009 to 2018. The matter is currently pending.

• PNGRB declared final tariff on March 12 2019 i.e. INR71.66/MMBtu. Zonal apportionment of tariff has been to submitted PNGRB on March 20 2019.

• APTEL allowed the appeal filed by PIL vide order dated November15 2019 and directed PNGRB to declare the capacity of PIL taking into consideration ofoperational parameters of the Pipeline and to decide the capacity within 3 months.

• PNGRB moved an interim application no. 2254 of 2019 seekingextension of time for determination of capacity of the pipeline. PNGRB filed the reportssubmitted by the EIL a consultancy firm appointed for capacity assessment of the PILPipeline and PIL filed its reply to the said reports.

• Subsequently to PIL's reply filing PNGRB filed itsre-joinder to PIL's reply in APTEL on April 08 2021. Pursuant to APTEL allowing tosubmit response PIL filed its reply on April 30 2021 denying the assumptions of PNGRBand sought the intervention of APTEL. Though the matter was listed for hearing on May 072021 APTEL did not take up any matter in view of prevailing Covid situation and all thepending matters listed on that day including PIL pipeline capacity matter have beenpostponed and listed for hearing to July 30 2021.

6.7 Site Visit Details

6.7.1 We had conducted virtual site visit of Gas Compressor Station No.3 (CS - 3) located near Nalagonda Telangana on May 12 2021 through video call. In viewof the ongoing COVID-19 situation in the country physical inspection of the Pipeline asrequired under the SEBI InvIT Regulations was practically not possible. Certainphotographs of the site have been provided below:

6.7.2 Certain photographs of the site as provided by the Managementhave been provided below:

6.8 Other disclosures as required under the SEBI InvIT Regulations havebeen provided in Annexure V of the Report.

7 Industry Overview3

7.1 Introduction

7.1.1 The future of India's energy sector and a large part of itseconomic development will be dominated by energy transition in the coming years whereconventional fossil fuels such as diesel and oil will take a backseat. Globalenvironmental commitments and domestic regulations are pushing India to switch to cleanerand more efficient energy sources forcing the country to place energy infrastructure atthe top of the agenda.

7.1.2 The Government of India has fixed an ambitious target ofincreasing the share of gas in the energy basket to 15% by 2030. However this isaccompanied with its own set of issues. Currently the natural gas sector in India isfacing major challenges due to lack of a robust gas infrastructure to support our desireto transition into a gas-based economy. Moving towards a gas-based economy and putting inplace a robust infrastructure base go hand in hand and cannot be treated separately.

7.1.3 The energy sector is one of the major sectors which is going tosee enormous growth in the coming years in the context of Indian population reachingapproximately 1.44 billion people by 2024 creating greater demand for energy. India hascommitted to low carbon energy and hence its energy portfolio mix is going to undergomajor changes with Renewables and Natural Gas set to play a major role. India has thepotential to be a much larger producer and consumer of natural gas.

7.1.4 Historically natural gas was significantly cheaper thanalternate fuels like motor spirit naphtha diesel and low sulphur heavy stock("LSHS") / furnace oil ("FO"). Although the price of natural gas isincreasing (especially of imported gas) newer technology and larger plants have made itpossible to ensure efficiency and economies of scale enabling an increase in the usage ofnatural gas. As such natural gas has become the preferred fuel for fertilizerspetrochemicals and increasingly the power generation sector. Further plannedinvestments in power fertilizer petrochemical and other areas including city gasdistribution suggest a sustained increase in India's level of natural gasconsumption.

7.1.5 During the 2000 to 2004 period India's gas market witnessedgas discoveries in the Krishna Godavari Basin ("KG Basin") the setting up ofthe liquefied natural gas ("LNG") re-gasification terminal and the commencementof LNG supply and successful execution/roll out of city gas distribution projects. Thesedevelopments had a positive impact on the environment and led to plans to set up aregulator due to the emergence of gas economy and related infrastructure development.During the 2004 to 2011 period India witnessed the beginning of the gas era withsuccessful commencement and operation of LNG terminal expansion of the transmissionpipeline network in the north-western corridor and the new network in the east-westcorridor setting up of the regulator the Petroleum and Natural Gas Regulatory Board("PNGRB") and the authorization of new pipelines and geographical areas("GA"s) for the city gas distribution ("CGD") network an increase ingas production from the KG Basin and increased supply of gas to many end use sectors.During this period the government announced a Gas Allocation Policy prescribingsector-wise allocation for gas being produced from the KG Basin. The following period2011 to 2015 witnessed an unprecedented decline of gas production

from the KG Basin from approximately 60 million metric standard cubicmeter per day ("MMSCMD") to approximately 10 MMSCMD. Gas production forecastsfrom other fields/discoveries in the KG Basin also failed to materialize. With declininggas production from the traditional fields of the Oil and Natural Gas Corporation("ONGC") India witnessed a continuous decline period in gas production for fiveyears and the government decided to not pursue any new gas based power projects due tostranded power projects of approximately 14000 megawatts ("MW"). The currentgovernment is trying to reduce the uncertainty in the gas market by announcing policies toattract investments and increase production.

7.2 Demand and Supply

7.2.1 The Natural Gas pipeline business and over all Natural Gasrelated business are interdependent i.e. pipeline provides important connectivity to thesuppliers and consumers and without adequate Natural Gas requirement and supply thepipeline business will not be feasible. Hence it becomes important to analyze demand andsupply situation of over all Natural Gas industry.

7.2.2 Supply Side Scenario

In the past various supply projections have consistently fallen shortof their target due to:

• the declining production from the prospective KG Dhirubhai 6("D6") fields;

• the declining production from traditional producing fields; and

• a lack of supply caused by the announcement of new finds fromthe KG Basin.

Following sets forth the historical and forecasted trend ofIndia's natural gas supply:

(MMSCM)

Details Financial Year March
2018-19 2019-20 2 020-21 P 2019-20 2020 21 (Target) 20 20-21 (P)
(a) Gross Production 32875 31184 28671 2415 3162 2684
- ONGC 24677 23746 21872 1906 2050 1832
- Oil India Private Limited (OIL) 2722 2668 2480 212 261 210
- Private/Joint Ventures (JV's) 5477 4770 4319 298 850 642
(b) Net Production (excluding flare gas and loss) 32058 30257 27738 2327 2612
(c) LNG Import* 28740 33887 32855 2970 2972
(d) Total Consumption (including internal consumption) (b+c) 60798 64144 60637 5297 5584
(e) Total Consumption (in BCM) 60.8 64.1 60.6 5.3 5.6
(f) Import dependency based on consumption (%) (c/d*100) 47.3% 52.8% 54.2% 56.1% 53.2%

*

Jul 2020-Mar 2021 Source: Directorate General of CommercialIntelligence and Statistics data and RIL March 21 data prorated.

Production of natural gas for the month of March 2021 was estimated2684 MMSCM which was higher by 11.1% compared with the corresponding month of theprevious year.

LNG import for the month of March 2021 was estimated 2972 MMSCM whichwas 0.1% higher than the corresponding month of the previous year.

7.2.3 Demand Side Scenario

The gas supply has always been a deterrent factor for the sectoralgrowth. India's gas demand is much higher than the total gas supply in the countryincluding both domestic supply and imported gas. However the different demand sectorshave varying demand dynamics and price sensitivities. The demand for natural gas in Indiais expected to get more than triple in the period 2012-13 (243 MMSCMD) to 2029-30 (746MMSCMD) according to Vision 2030 document of PNGRB.

Sector wise gas consumption for 2019-20 (figures in mmscmd):

Sr. No. Sector Domestic Gas R-LNG Total
1 Power 20.1 10.1 30.2
2 Fertilizers 17.8 26.1 43.9
3 City Gas Distributions 16.0 12.7 28.7
4 Others 14.4 36.0 50.4
Total 68.3 84.8 153.2

Power sector dominates the Domestic Gas consumption while theFertilizer sector has a larger share in the LNG consumption. About a decade ago the twosectors had a share of almost 70% which has fallen to around 48% in 2019-20. During theintervening period the share of power sector has fallen significantly because of fall indomestic gas production and therefore stoppage of allocation of KG D6 gas to the sector.Fertilizer has indeed maintained its share of allocation of gas since that sector retainedits priority tag though its percentage share in consumption has fallen. High priced LNGhas never been an option for power sector and hence its share fell along with domesticsupply fall. In fact more than 14000 MW of new gas based power plants were renderedstranded by lack of domestic gas supply.

The introduction of a government reverse bidding subsidy scheme forsupply of LNG to these stranded power plants to make them operational at 35% Plant LoadFactor did revive some of these plants for two years. Effectively power sector will be anon-consumer of gas (barring the old supplies) if further domestic gas is not madeavailable or there is no special government scheme for supply of R-LNG to the sector withincentives. As far as fertilizer plants are concerned most of the existing plants haveconverted to gas and they continue to get supply. But in terms of future growth for gasdemand the sector has limited potential and hence any new LNG terminal operators do notlook at it as a major anchor barring some scope for revival of a couple of plants.

Indian Natural Gas Demand - Affordability Matrix

Delivered Cost Range (USD/MMBTU) Consumption Sectors Estimated Demand Composition %
USD 10 - 15 LPG Refinery - Feedstock Petrochemicals 45%-48%
Diesel Back-up Power Peak Power and other new areas of gas usage
USD 7.5 - 10 Fertilizer GCD Industrial/Commercial
USD 5.5 - 7.5 CGD - Transport / Domestic Refinery Fuel Industry Fuel 55%-60%
< USD 5.5 Base Power

7.3 Future Outlook of Natural Gas

7.3.1 The power sector is limiting its LNG usage due to the base powerbeing highly sensitive to gas price. Any gas that priced over USD 5.5 / one millionBritish thermal units ("mmbtu") makes it challenging for gas based powerto compete with coal based power. With renewable power prices also decreasing in recentyears the competitiveness of gas based power faces a challenge and therefore aspecifically focused strategy on the power sector to make gas usage viable or acceptableis required.

7.3.2 Outlook FY22: Overall production of natural gas is to rise on theback of scale up natural gas production from the KG basin block. Consumption of naturalgas has been recovering and during FY22 demand for natural gas is to turn positive. Giventhe government's thrust towards propagating the use of natural gas consumption is tobe supported by the increase of its use in the CGD network. Stability in urea productionwill also support gas consumption. Imports of natural gas in the form of LNG are toincrease by 18.2%.

7.3.3 The following table sets forth the domestic natural gas price andgas price ceiling (gross calorific value basis):

Period Domestic Natural Gas Price in USD/MMBTU Gas Price ceiling in USD/MMBTU
November 2014 - March 2015 5.05 -
April 2015 - September 2015 4.66 -
October 2015 - March 2016 3.82 -
April 2016 - September 2016 3.06 6.61
October 2016 - March 2017 2.50 5.30
April 2017 - September 2017 2.48 5.56
October 2017 - March 2018 2.89 6.30
April 2018 - September 2018 3.06 6.78
October 2018 - March 2019 3.36 7.67
April 2019 - September 2019 3.69 9.32
October 2019 - March 2020 3.23 8.43
April 2020 - September 2020 2.39 5.61
October 2020 - March 2021 1.79 4.06
April 2021 - September 2021 1.79 3.62

7.3.4 While India has a huge potential market global market dynamicsin the last 3 years have posed a plethora market related challenges - US Henry Hubgas-based contracts are no longer as attractive compared to the time when it was signedespecially in the current market conditions of oil and gas prices. Vanishing of premium ingas indexed contracts vis-a-vis oil indexed contracts due to steep fall in oil prices andreluctance of end use customers to enter into long term agreements have made companiesvulnerable. Even attempts to trade US LNG in international markets is a major issue due todown trend in spot LNG prices.

7.4 India's Gas Transmission Infrastructure

7.4.1 Indian natural gas sector is facing one of the major challengesin recent years in terms of lower quantum and sluggish growth in domestic gas productionchallenges of underutilization of regasification and transmission pipeline infrastructureand global oil and gas market dynamics.

7.4.2 Though gas industry in India has witnessed growth in terms ofdemand and infrastructure in the last decade the growth has still remained limited to fewregions and the pipeline and distribution infrastructure has remained confined to a fewstates in the West - North belt and East to West. When it comes to utilization of thesepipelines the situation has not improved significantly. While new pipelines are beingconstructed in various parts of India including South and East the progress has been veryslow.

7.4.3 India's gas transmission infrastructure has been growing sincethe completion of the first long term LNG deal in late 1990s and the supply of gas fromnew sources during the 2001 to 2010 period. Additional arterial pipeline network on theHazira- Vijaipur - Jagdishpur corridor and the east-west corridor and the regional networkin the Mumbai and Gujarat regions provided

the necessary impetus to growth. The CGD infrastructure also grew alongwith these corridors and regions. The decline in domestic production and the challenges ofusing high priced LNG caused pipeline utilization to decrease.

7.4.4 The following table sets forth an overview of India's gaspipeline infrastructure as on June 30 2020 :

Sr. No. Transporter Length (Km) % Share
1 GAIL 11774.1 69.2%
2 PIL 1460.0 8.6%
3 IOCL 155.0 0.9%
4 ONGC 24.0 0.1%
5 GSPL 2264.6 13.3%
6 GGL 73.2 0.4%
7 RGPL 312.0 1.8%
8 AGCL 104.7 0.6%
9 DFPCL 42.0 0.2%
10 GIGL 442.0 2.6%
11 GITL 364.0 0.0
Total 17015.6 100.0%

7.4.5 In the transmission pipeline segment one of major enablers ofgrowth and capacity utilization besides regular access to multiple sources of gas anddemand centers across the network is the government's policy and regulation.Regulations are expected to provide a fair and level playing field for operators whileensuring that the customers get a regular supply at reasonable prices. Consecutively theregulation must facilitate the investment and expansion of the network by serious playerswhile keeping economic viability in view. When such growth enablers are stifled it has adirect impact on pipeline capacity creation and utilization. This issue is brought out bythe low capacity utilization of the existing pipeline network.

7.4.6 Though government laid out ambitious plan to double the pipelinenetwork and Indian pipeline companies have obtained authorization for a number ofpipelines through PNGRB the progress of construction of these pipelines has been behindschedule.

India Gas Pipeline Infrastructure under Execution as on June 30 2020 -

Sr. No. Pipeline Entity Length under construction (Km) % Share
1 Kakinada - Vishakapatnam - Srikakulam APGDC 391.0 2.5%
2 Jaigarh - Mangalore HEPL 749.0 4.8%
3 Kakinada - Vijayawada - Nellore IMC 667.0 4.3%o
4 North - East Natural Gas Pipeline Grid IGCL 1656.0 10.7%
5 Kanai Chhata - Shrirampur Consortium of H - Energy 317.0 2.0%
6 Srikakulam - Angul GAIL 690.0 4.4%
7 Mumbai - Nagpur - Jharsuguda GAIL 1755.0 11.3%
8 Chainsa - Jhajjar - Hissar GAIL 145.0 0.9%
9 Dadri - Bawana - Nangal GAIL 125.0 0.8%
10 Kochi - Koottanad - Bangalore - Mangalore GAIL 723.0 4.7%
11 Mehsana - Bhatinda GIGL 1712.0 11.0%
12 Bhatinda - Jammu - Srinagar GIGL 623.0 4.0%
13 Mallavaram - Bhopal - Bhilwara - Vijaipur GITL 1678.0 10.8%
14 Dabhol - Bangalore GAIL 218.0 1.4%
15 Ennore - Tuticorin IOCL 1398.0 9.0%
16 Jagdishpur- Haldia - Bokaro - Dhamra - Paradip - Barauni - Guwahati GAIL 2696.0 17.3%
Total 15543.0 100.0%

7.4.7 India has been both in the past and currently evaluating anumber of options of gas supply through Transnational pipelines -

• Turkmenistan - Afghanistan - Pakistan - India Pipeline (TAPI)

• Iran - Pakistan - India Pipeline (IPI)

• Iran - India Pipeline (with Oman Link)

• Russia - India Pipeline via Iran / Middle East

• Middle East India Deep Water Pipeline (MEIDP) - (Oman-IndiaPipeline)

7.4.8 Given the challenges faced by LNG terminal investors in tying updemand for LNG in India the transnational pipelines would really face major challengesbecause of the huge investment involved and the price and market competition faced by themin Indian gas markets.

7.4.9 Many of the transnational pipelines proposed in the past have hadchallenges of security threat or logistics or economics. Oman to India deep water pipelinehas been presented to the Ministry as an economically viable and sustainable alternativewith no major expected security threat.

8 Valuation Approach

The present valuation exercise is being undertaken to arrive at fairenterprise value of InvIT Asset for the purpose as mentioned above in the Report. We haveconsidered Fair Value as the valuation base for estimating the fair enterprise value ofInvIT Asset.

There are three generally accepted approaches to valuation:

i. "Cost" Approach

ii. "Income" Approach

iii. "Market" Approach

Within these three basic approaches several methods may be used toestimate the value. An overview of these approaches is as follows:

8.1 Cost Approach

8.1.1 The cost approach values the underlying assets of the business todetermine the business value of the InvIT Asset. This valuation method carries more weightwith respect to holding companies than operating companies. Also asset value approachesare more relevant to the extent that a significant portion of the assets are of a naturethat could be liquidated readily if so desired.

i. Net Asset Value Method

• The Net Asset Value ("NAV") method under costapproach consider the assets and liabilities including intangible assets and contingentliabilities. The net assets after reducing the dues to the preference shareholders ifany represent the value of the company.

• NAV method is appropriate in a case where the major strength ofthe business is its asset base rather than its capacity or potential to earn profits.

• This valuation approach is mainly used in cases where the assetbase dominates earnings capability.

• As an indicator of the total value of the entity the net assetvalue method has the disadvantage of only considering the status of the business at onepoint in time.

• Additionally net asset value does not consider the earningcapacity of the business or any intangible assets that have no historical cost. In manyrespects net asset value represents the minimum benchmark value of an operating business.

ii. Break Up Value Method

• Under the Break Up Value ("BV") method theassets and liabilities are considered at their realizable (market) values includingintangible assets and contingent liabilities if any which are not stated in the balancesheet. From the realizable value of the assets the payable value of all liabilities(existing plus potential) are deducted to arrive at the BV of the company.

• This Valuation approach is mostly used in case of companieswhere there are huge operating investments or surplus marketable investments.

8.2 Income Approach

8.2.1 The Income approach focuses on the income prospects of a company.i. Discounted Cash Flow Method

• Under the Discounted Cash Flow ("DCF") methodthe value of the undertaking is based on expected 'cash flows for future discounted at arate which reflects the expected returns and the risks associated with the cash flows asagainst its accounting profits. The value of the undertaking is determined as the presentvalue of its future free cash flows.

• Free cash flows are discounted for the explicit forecast periodand the perpetuity value thereafter. Free cash flows represent the cash available fordistribution to both the owners and creditors of the business.

• Discount rate is the Weighted Average Cost of Capital ("WACC")based on an optimal vis-a-vis actual capital structure. It is appropriate rate of discountto calculate the present value of future cash flows as it considers equity-debt risk andalso debt-equity ratio of the firm.

• The perpetuity (terminal) value is calculated based on thebusiness's potential for further growth beyond the explicit forecast period. The "constantgrowth model" is applied which implies an expected constant level of growth (forperpetuity) in the cash flows over the last year of the forecast period.

• The discounting factor (rate of discounting the future cashflows) reflects not only the time value of money but also the risk associated with thebusiness's future operations.

• The Business/Enterprise Value so derived is further reduced byvalue of debt if any (net of cash and cash equivalents) to arrive at value to the ownersof business. The surplus assets / non-operating assets are also adjusted.

• In case of free cash flows to equity the cash available fordistribution to owners of the business is discounted at the Cost of Equity and the valueso arrived is the Equity Value before surplus/ non-operating assets. The surplus assets /non-operating assets are further added to arrive at the Equity Value.

8.3 Market Approach

i. Market Price Method

• Under this approach the market price of an equity share asquoted on a recognized stock exchange is normally considered as the fair value of theequity shares of that company where such quotations are arising from the shares beingregularly and freely traded. The market value generally reflects the investors'perception about the true worth of the company.

ii. Comparable Companies Multiple Method

• Under the Comparable Companies Multiple ("CCM")method the value is determined on the basis of multiples derived from valuations ofcomparable companies as manifest through stock market valuations of listed companies.This valuation is based on the principle that market valuations taking place betweeninformed buyers and informed sellers incorporate all factors relevant to valuation.Relevant multiples need to be chosen carefully and adjusted for differences between thecircumstances.

• To the value of the business so arrived adjustments need to bemade for the value of contingent assets/liabilities surplus Asset and dues payable topreference shareholders if any in order to arrive at the value for equity shareholders.

iii. Comparable Transactions Multiple Method

• Under the Comparable Transactions Multiple ("CTM")the value of a company can be estimated by analysing the prices paid by purchasers ofsimilar companies under similar circumstances. This is a valuation method where one willbe comparing recent market transactions in order to gauge current valuation of targetcompany.

8.4 Conclusion on Valuation Approach

Sr. No. Valuation Approach Valuation Methodology Used Explanation
I Cost Approach - Net Asset Value & Break Up Value No NAV does not capture the future earning potential of the business.
II Income Approach - Discounted Cash Flow Yes The project under the Company derives its true value from the potential to earn income in the future. Hence we have considered DCF method under Income Approach for Valuation.
III Market Approach - Market Price No The Company is not listed on any stock exchange therefore we have not considered market price method of valuation.
- Comparable Companies No There are no listed companies directly comparable to the business of the InvIT Asset considering the nature of operations capital structure and the type of asset held. Hence we have not considered CCM method.
- Comparable Transactions No Due to unavailability of transactions in the public domain with business and characteristics similar to the Company.

• Accordingly in the instant case the Discounted Cash FlowMethod was considered as the most appropriate method for valuation of the InvIT Asset.Under the DCF method we have used Free Cash Flow to Equity ("FCFE") model forvaluation.

9 Valuation of InvIT Asset

9.1 Key Factors Impacting Valuation

9.1.1 The business of the Company is natural gas transportation hencenatural gas volumes transported and tariff of the gas are the main value drivers for thebusiness.

9.1.2 For assessing the volumes to be transported through the Pipelinewe have relied on technical report provided by Wood Mackenzie. Wood Mackenzie is a globalenergy chemicals renewables metals and mining research and consultancy group. WoodMackenzie was engaged by an affiliate of the Sponsor in connection with Commercial DueDiligence of the Pipeline.

The second major factor is Tariff for gas transportation which isfixed by PNRGB and revised every five years. The tariff rate is fixed on the basis offuture estimated volumes and total expenditure to be incurred by the firm in 25 yearssince commercial operations. Current tariff is INR 71.66/mmbtu as determined by PNGRB videits order dated March 12 2019 which has been considered for the projected period.

9.2 DCF Method:

9.2.1 The value of the InvIT Asset is based on the cash flow of PIL.

9.2.2 The audited balance sheet position of PIL as on March 31 2021has been considered as the opening balance sheet of PIL for the purpose of valuation.

9.2.3 The financial projections as provided by the IM for periodstarting from April 1 2021 to March 22 2039 has been considered for valuation.

9.2.4 Following are the key assumptions considered in the financialprojections while determining the operating cash flows of PIL:

i. Volumes:

• The gas transportation volume is based on the Wood MackenzieReport dated March 23 2021 provided by IM to estimate the production of natural gas thatcould be transported through the Pipeline.

• The primary source of production of natural gas considered inthe Wood Mackenzie Report is from the KG basin from discovered resources. Additionallythe Wood Mackenzie Report also provides estimates of production volumes from yet to findresource. Further the excel working provided by Wood Mackenzie also provides some LNGvolumes expected to be flown in the PIL pipeline from west coast terminals and also someadditional technical reserves in KG Basin. We have considered 100% of production volumesestimated from discovered resources and LNG volumes and 50% of production volumesestimated from yet to find resources and technical reserves for the volume projections ofgas transportation through the Pipeline based on the assumption that once production fromexisting and upcoming fields goes down there would be new gas explorations in KrishnaGodavari Dhirubhai 6 ONGC etc. fields in the east coast of India. Further the volumedata provided in the excel file is based on calendar year basis. For the purpose of thisexercise the same has been proportionally apportioned to arrive at annual volume forMarch ending financial year basis.

ii. Tariff for Gas Transportation:

The tariff rate currently charged to the customers is INR 71.66/mmbtuwhich was fixed by PNGRB vide order date March 12 2019.

iii. Working Capital

• The amount of inventory is estimated to be maintained at thesame level as existing on March 31 2021. The working capital days outstanding estimatedfor key items is as follows:

- Debtors - 15 days of annual revenue

- Current liability for Gas consumption and operating expenses - 90days of annual gas and operating cost

iv. Capital Expenditure

• Based on discussions with the Management we understand that amid-life overhaul and full-life overhaul of Gas Turbines compressors fuel managementsystems Gas Engine Generators and upgradation and replacement of various plant andmachinery components shall be required due to obsolescence and deterioration. Accordinglya yearly capital expenditure of INR 2000 Mn annually from FY 2030-31 to FY 2038-39 forupkeeping of the Pipeline has been considered.

v. Interest and Debt Repayment

• PIL has issued Redeemable Secured Non-Convertible Debentures ("NewNCDs") to third party with face value of INR 64520 Mn on April 23 2019. The NewNCDs have a credit rating of AAA. The fair value of these New NCDs as reported in theaudited financials of the Company is INR 64520 Mn.

• The New NCDs have a coupon rate of 8.95% payable quarterly. TheNew NCDs have a redemption period of 5 years from issue date.

• We understand from the Management that for the purpose ofredemption of New NCDs PIL will refinance the loan after ~3 years i.e. after March 312024 and thereafter as per information provided by the Management the New NCDs areassumed to be repaid within a period 15 years. The interest rate on refinancing of NewNCDs is assumed to be 8.21% based on expected future interest rate for a period of 15years for a AAA rated bond using FIMMDA Corporate Spread.

• Further as on Valuation Date PIL has outstanding RedeemableNon-Convertible Debentures issued to InvIT ("InvIT NCDs") of INR 59939Mn. The fair value of these InvIT NCDs as reported in the audited financials of theCompany is INR 74244 Mn.

• The outstanding InvIT NCDs are to be repaid over a tenure of 20years from the issue date as per the terms provided in DTD Agreement.

• The payment of interest and principal component of the InvITNCDs is provided in the DTD Agreement wherein interest component will be computed on theoutstanding principal of Total NCDs (i.e. InvIT NCDs + New NCDs). For first five yearsupto March 31 2024 the coupon rate is fixed at 9.7%. For the balance period the couponrate has been determined based on the Fixed Income Money Market and DerivativesAssociation (FIMMDA) rates as on the Valuation Date. Accordingly the coupon rate forbalance period is considered at 9.5%. From such interest component first the payment willbe made for interest payable to the New NCDs and balance interest shall be paid to InvITNCDs. Similar approach is adopted for payment of principal portion of the Total NCDs.

vi. Terminal Year Cash Flow

• For the terminal period a terminal growth rate of 1% hasbeen applied on EBITDA based on projected industry outlook and overall outlook of the gasflow. Due to release of working capital no working capital has been assumed in theterminal period on a conservative basis. Capital expenditure for terminal period has beenestimated equal to INR 2000 Mn required for up keeping the Pipeline.

• Further PIL has issued Compulsory Convertible Preference Shares("CCPS") and Redeemable Preference Shares ("RPS"). Asper the terms of the Transaction Documents the value and cash flows to CCPS and RPS isattributable after the end of explicit period i.e. March 22 2039 and accordingly thevalue of CCPS and RPS as per the terms of the Transaction Documents has been adjusted fromthe Terminal Value.

• Corporate income tax in the explicit period has been consideredas per the current tax laws applicable in India @ 25.2%.

• The cash flows of PIL post all the aforesaid adjustments hasbeen discounted to present value at Cost of Equity.

vii. Discounting Factor

• We have used the Free Cash Flows to Equity ("FCFE")model under DCF method to estimate the equity value of InvIT Asset. In FCFE the free cashflows available are discounted by Cost of Equity ("CoE") to derive thenet present value.

• The CoE has been calculated as per the Capital Asset PricingModel based on the following parameters:

- Cost of equity = Risk Free Rate + [Beta X Equity Risk Premium] +Company Specific Risk Premium

- The risk-free rate of return is based on yields of 10-year zerocoupon bond yield as on March 31 2021 as listed on www.ccilindia.com. In the presentcase the risk-free rate of return is arrived at 6.7%.

- Market Return is a measure of rate of return that investors earnsby investing in equity markets. It is calculated based on the average historical marketreturn. In the present case the market return is considered at 15%.

- Risk premium is a measure of premium that investors require forinvesting in equity markets rather than bond or debt markets. A risk premium is calculatedas follows:

Risk premium = Equity market return (Rm) - Risk free rate (Rf)

In the present case the risk premium is arrived at 8.3%.

- Beta is a measure of systematic risk of the company's stockas compared to the market risk as a whole. Beta of 1.22 considered for determination ofCoE is based on unlevered beta of broad comparable companies (Refer Annexure II) inthe listed space operating in similar sector and relevered with a target long termdebt-equity ratio of 1:1.

• Based on above the base cost of equity is arrived at 16.9%.

• There is uncertainty involved in achieving the future extractionof projected gas volumes considering the historical performance of extraction of naturalgas therefore We have considered a company specific risk premium of 3%.

• Accordingly the cost of equity is arrived at 19.9%.

9.2.5 The Management has informed us that contingent liabilities ofPIL if any and liability from various litigation in respect of the Pipeline are notexpected to materialize on PIL hence no adjustment has been made in the currentvaluation.

9.2.6 The cash and cash equivalent (including advance tax receivable)of PIL as on the Valuation Date is INR 6525.2 Mn.

9.2.7 The present value of cash flows (including cash and cashequivalent) to shareholders before net cash flows accruing to RIL as per the TransactionDocuments is arrived at INR 77731.1 Mn.

9.2.8 The fair value of net debt/ liability in the books of PIL as onthe Valuation Date amounts to INR 132239.0 Mn.

9.2.9 PIL and RIL have entered into a PUA in order to set out theterms for RIL to reserve transportation storage or other capacity in the Pipeline for aperiod of 20 years. The PUA is executed on March 19 2019. The PUA inter aliaprovides for the following:

• RIL to pay contracted capacity payments to PIL on a quarterlybasis for the capacity booked determined in accordance with the PUA. The contractedcapacity payments shall be paid only when the actual transportation charges payable forthe actual quantity transported is less than the contracted capacity payments. Such netaccumulated contracted capacity payments shall be adjusted in the quarters where theactual transportation charges payable for the actual quantity transported is more than thecontracted capacity payments.

• In consideration of RIL reserving the capacity in the Pipelineand making the payment on account of contracted capacity payments to PIL RIL is entitledto receive certain cash flows subject to deduction of taxes by PIL as per applicable law.The mechanism for computing the cash flow and payment of the same to RIL is provided inthe PUA.

• The payment of such cash flows shall be made in the FinancialYear when the actual transportation charges received by PIL in a Financial Year is higherthan the contracted capacity payments during the Financial Year.

9.2.10 In addition PIL and RIL amongst other have entered into PIL SHAthrough which RIL has the option to buy the entire equity shares held by the Trust in PILat the option trigger date which for the current purpose has been considered as 20 yearsfrom the completion date which ends on March 22 2039. Accordingly in case the terminalvalue as on March 22 2039 materially exceeds the purchase consideration for the equityshares then such value shall also accrue to RIL.

9.2.11 Based on above the fair enterprise value of InvIT Assetconsidering the fair value of Net Debt and after reducing the net cash flow accruing toRIL pursuant to the agreed terms of the Transaction Documents is arrived at INR138559.9 Mn (Refer Annexure lA).

10 Valuation Summary

10.1. The current valuation has been carried out based on the valuationmethodology explained herein earlier. Further various qualitative factors the businessdynamics and growth potential of the business having regard to information basemanagement perceptions key underlying assumptions and limitations were given dueconsideration.

10.2. We would like to highlight that in the ultimate analysisvaluation will have to be tempered by the exercise of judicious discretion and judgmenttaking into account all the relevant factors. There will always be several factors e.g.quality of the management present and prospective competition yield on comparablesecurities and market sentiment etc. which are not evident from the face of the balancesheets but which will strongly influence the worth of an entity or business.

10.3. The fair enterprise value of InvIT Asset pursuant to the agreedterms of the Transaction Documents is arrived at INR 138559.9 Mn.

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