Provoke GAIL protection with ‘maintain’; SOTP-based TP of Rs 145

Industrial clients might enhance economics by 5-13.5% driving some upside to transmission and buying and selling vol.

Transmission is poised for sturdy development on fuel availability alongside new pipelines and unified tariffs. Natgas inclusion beneath GST ought to have small constructive quantity affect however transmission tariff cuts, petchem oversupply and home fuel worth flooring are headwinds. A large pipeline. InvIT might give 20% inventory upside however appears to be like unlikely. We see restricted upside with out additional crude rally and provoke at Maintain, SOTP-based PT of Rs 145 noting <10% ROCE over FY21-24E.

7.5% vol Cagr in transmission over FY21-24E, ROCE to stay sub-10%. We count on cumulative quantity development of 26mmscmd on a low FY21E base pushed by fertilizer, refining and CGD alongside its new pipelines. With tariffs more likely to be lowered c.5% (calc) to regulate for decrease company tax charge, section ROCE will stay in single digits.

Buying and selling volatility might scale back, RIL’s domgas a danger. Revived SOE fertilizer vegetation might devour 10mmscmd of US LNG by FY24E lowering buying and selling revenue volatility. However fertilizer vegetation might discover RIL-BP’s home fuel cheaper if future fuel auctions are priced at an inexpensive slope to crude posing danger to Gail’s US LNG volumes. Profitability headwinds for polymer enterprise. China goals to lift self-sufficiency in polyethylene (PE) by including 20% of present international capability over CY21-23E doubtless weighing on PE worth. New LNG funding drying up in CY16-17 and Covid-related building delays are anticipated to strengthen LNG worth over CY22-25E doubtless dragging PE profitability. LPG profitability buoyant, flooring worth on home fuel headwind. Decade low home fuel worth and rallying crude are supportive of profitability. A regulated flooring to home fuel worth is a key danger.

Restricted upside from inclusion of pure fuel beneath GST. GAIL’s transmission and LPG manufacturing segments might declare ~Rs 3.5bn (calc) of enter tax credit score stranded at the moment however are more likely to go these by to clients.

Industrial clients might enhance economics by 5-13.5% driving some upside to transmission and buying and selling vol.

Sizable pipeline InvIT might rerate inventory. The proposed InvIT might re-rate the valuation a number of of transmission enterprise from 6.5x to 9x lifting GAIL’s honest worth 20% (Rs 30/sh) offered sizable belongings are transferred. However a small providing appears to be like doubtless given three pipelines contribute 70% of revenues.

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