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Motilal Oswal
GAIL India (Buy)
CMP: ₹106.8
Target: ₹150
The company organised a visit to its Horizontal Directional Drilling (HDD) site at Damodar river, Durgapur along with interaction with the senior management. Some highlights of the same are:
a) Phase-1 of 753 km from Phulpur to Dobhi, connecting Gorakhour, Patna and Barauni has already been commissioned along with the six Geographical Areas (GAs) on this length.
b) Phase-II of 901 km connecting Dobhi to Durgapur and Dhamra to Angul is expected to be completed by December 2020. Phase-III of 1,001 km from BokaroAngul and Durgapur-Kolkata is also expected to be completed by December 2020.
c) Barauni-Guwahati pipeline of 716km is expected to be completed by December 2021.
As we have highlighted in earlier reports, we expect GAIL to be a key beneficiary of the National Green Tribunal’s focus on reducing industrial pollution.
The main concern on the stock is low spot LNG prices which may result in losses in the US LNG contracts. However, with start of new fertiliser plants on JHBDPL, the company expects all US contracts to be sold in India profitably.
GAIL is trading at 8.2x FY21 EPS of ₹12.6 and 2.8x FY21 EV/EBITDA. It trades at about 40 per cent discount to long term one-year forward PE. We value it at 8xadjusted FY22 EPS and add the value of investments to arrive at a target price of ₹150. Reiterate ‘Buy’.
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