‘Hold’ Gail (India), scale of tariff revision was a disappointment


‘Hold’ Gail (India), scale of tariff revision was a disappointment

Petroleum and natural Gas Regulatory Board (PNGRB) has approved the long-pending tariff revision for HVJ/HVJ expansion pipelines, thereby taking care of the tariff revisions until FY24. Key highlights: (i) Blended tariff at Rs 1.7/scm is 11.5% lower than our estimate of Rs 2/scm, but 0.4% higher than the earlier tariff; (ii) however, this is 58% below GAIL’s submission (Rs 4.1/scm) due to much lower tariffs for the HVJ pipeline; (iii) with the two pipelines contributing over 60% to GAIL’s overall throughput, the tariff revision prompts a 9.9%/9.3% cut in FY20/21e transmission Ebitda; and (iv) however, given the PNGRB’s volume assumptions of 80mmscmd (currently 65mmscmd), we believe GAIL is likely to appeal the PNGRB order. We are revising down the TP by 4.4% to Rs 367/share due to a 4.7%/4.2% cut in FY20/21e Ebitda. Retain Hold as the stock is fairly priced at 5.3x FY21E EV/Ebitda. Read More

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