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Reliance Securities
GAIL (Hold)
CMP: ₹313.7
Target: ₹336
The PNGRB (Petroleum and Natural Gas Regulatory Board) has issued “integrated tariffs” of ₹41.1/mmbtu on GCV (Gross calorific value) for HVJ/DVPL (Hazira-Vijaipur-Jagdishpur/ delivering projects by maintaining value upgradation).
GAIL has been charging ₹25.46/mmbtu to HVJ pipeline users and ₹53.65/mmbtu to HVJ upgradation users. GAIL had sought to raise the tariff to ₹175.20/mmbtu in HVJ from ₹25.46/ mmbtu and to ₹79.28/mmbtu in DVPL from ₹53.65/mmbtu. New Tariffs are applicable for FY20 and onwards. Under the new integrated structure, the tariff would increase by 61 per cent for the HVJ users, while it would decline by 23 per cent for the HVJ upgradation. Declared tariffs are below our expectations, we were expecting weighted average GAIL’s all pipeline tariffs to ₹ 48/mmbtu.
Now our calculation suggests that new weighted average tariffs for all GAIL’s pipeline would be about ₹42/mmbtu, which is again below the market expectations and below the company guidance including the Mumbai Regional pipeline tariff revision. In light of the above, we reduce our earnings estimates by 9/10 per cent for FY20/21E and downgrade stock to ‘hold’ from ‘buy’ with a revised discounted cash flow-based (DCF-based) target price of ₹336 (from ₹386 earlier).
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