GAIL (India) Ltd. share price target

LPG prices have seen a declining trend over the last couple of months. This will have an impact on Gail's LPG/liquid hydrocarbon (LLH) business. We lower LPG/LLH realisations from | 35,000 in Q1FY20E to | 32,100 per tonne from Q2FY20E to factor in the recent decline in LPG prices in global markets. Subsequently, we expect LPG/LLH segment EBIT at | 1860.2 crore and | 1788.2 crore for FY20E and FY21E, respectively. This is expected to result in a reduction in standalone earnings estimate for Gail by ~5% to | 11.7 per...

PNGRB in its Mar'16 order issued final initial tariff for the KGBNGPL pipeline at INR45.32/mmbtu v/s the proposed INR180.77/mmbtu by GAIL. In a letter dated 22nd Oct'18, GAIL proposed tariff revision for KGBNGPL at INR47.20/mmbtu and an extension of 10 years to the life of the pipeline. However, PNGRB approved a tariff ~65% lower sharply reduced from the current INR45.32/mmbtu to INR16.14/mmbtu, effective 1st Jul'19. Sharp reduction in the revised tariff is on account of huge divergence in...

We may see some correction in the stock owing to lower than expected transmission tariff hike for the pipelines that transmit ~67% of total volumes. However, we maintain our faith given the increase in volumes from the upcoming RLNG terminals and the completion of the Kochi-Mangalore and JHBDPL pipelines. Our TP is Rs 412/sh (7.5x Mar-20E EV/e to the more stable Gas and LPG transmission businesses, 5.0x EV/e to the more volatile gas marketing business, 6.5x EV/e for the cyclical petchem and LPG/LHC businesses, Rs 75 for investments and Rs 23/sh for CWIP). Despite an underwhelming tariff revision for HVJ and HVJ upgradation pipelines, we maintain BUY on GAIL given (1) Its dominant position in Indias gas pipeline network, (2) The high share of volume in the upcoming eastern corridor gas pipeline, and (3) The clarity of earnings beyond FY22 from HVJ, which alone transmits ~27% of total transmission volumes.

Petroleum and Natural Gas Regulatory Board (PNGRB) has fixed the gas transmission integrated tariffs for Gail's HVJ old pipeline and HVJ upgradation pipelines, which account for ~60% of volumes. The tariffs have been revised upwards by just 3.8% from | 39.6/mmbtu earlier to | 41.1/mmbtu (~1.5/scm) now vs. our estimate of an upward revision in tariffs by 15-20%. Hence, we revise our blended gas transmission tariffs estimates from | 1.6/scm & 1.65/scm in FY20E & FY21E to | 1.53/scm & | 1.58/scm in FY20E & FY21E, respectively. This will result in a reduction in...

Tepid tariff hike doesn't alter buoyant outlook The PNGRB notified tariffs for five pipeline networks of GAIL, largest of them being the HVJ pipeline network (constituting ~30% of GAIL's gas transmission volumes). The integrated tariffs for HVJ at Rs41.1/mmbtu (or Rs1.44/scm) optically seem lower than the FY19 average (1.47/scm). However, we see earnings upside potential (~Rs2.4/sh) on consolidating incremental revenues from all tariff orders. We maintain earnings estimates...

GAIL (India) reported profit after tax of Rs 1122.23 crore in Q4FY19 up by 10% compared to company fell 200 bps to 9% in Q4FY'19 compared to Q4FY'18 leading to 1% decrease in operating profits to Rs 1684.08 crore. Cost of material consumed as a percentage of adjusted net sales fell 10 bps to 6.7%. Purchase of stock in trade was up 190 bps to 73.9%. Employee benefit expense fell 20 bps to 2.2%. Other expenses rose 20 bps to 8.1%. Other income was up 214% to Rs 865.88 crore. As a result PBDIT increased 29% to 2549.96 crore. Interest cost fell 21% to Rs 26.33 crore while depreciation rose 27% to Rs 457.37 crore....

(1) Rising supply of NG and (2) A multitude of LNG liquefaction terminals coming on-stream towards the fag end of CY19 will boost RLNG exports from US and also keep Henry Hub (HH) prices subdued in the near term, enabling GAIL to swap more cargoes. Thus, the US LNG is not a stress point. Our SOTP target is Rs 408 (7.5x Mar-20E EV/e to the more stable Gas and LPG transmission businesses, 5.0x EV/e to the more volatile gas marketing business, 6.5x EV/e for the cyclical petchem and LPG/LHC businesses, Rs 75 for investments and Rs 23/sh for CWIP). Given GAILs dominant position in Indias gas pipeline network and the high share of volume in the upcoming eastern corridor gas pipeline, its gas transmission business is likely to be in a sweet spot. Maintain BUY.

GAIL's Q4FY19 result was a miss to our estimate owing to lower profits from Petchem and Gas trading segment. Revenue/Adj. PAT increased by 21.6%/13% YoY to Rs187bn/Rs11bn whereas EBITDA remained flattish YoY at Rs16.8bn in Q4FY19. Gas trading volume increased 10% YoY to 98mmscmd whereas gas transmission volume grew by 3% YoY to 109mmscmd. The company has already booked ~90% of US LNG volume in CY20 which provides positive growth outlook. We slightly tweak our TP to...

Gail India reported a mixed set of results for Q4FY19. The profitability of gas transmission, gas trading were marginally above our estimates whereas petchem segment, LPG segment results were below our estimates. EBITDA at | 1684.1 crore (flattish YoY), came below our estimates of | 2176.4 crore also on account of higher other expenses. Subsequently, the reported PAT...

Results below estimates supported by gas marketing. Maintain Accumulate GAIL's Q4FY19 revenue were in line with our estimates. Profitability was below our estimate, due to weakness in the petchem, LPG, and LHC business, which was offset by the gas marketing business. Considering the volatility in crude oil, performance in the gas marketing segment is commendable and lead us to believe that H1FY20 results will be robust. The management continues to guide that all cargoes expected in short term are completely hedged. The gas transmission volumes at 109...