Our FY22E Ebitda estimates could see 15% upgrade on the back of greater nat gas trading and LPG profitability if crude sustains at $70. Our fair worth is Rs 170 at $70, Rs 193 at $80. A possible InvIT listing could yield Rs 30/share upside offered it is of meaningful size. However, any considerable correction in crude value remains the crucial danger. Maintain Hold with PT of Rs 150 on balanced danger-reward.
FY22E Ebitda rises 16% for each and every $10 rise in typical crude value: Cyclical segments viz. organic gas trading and LPG sales with: (i) crude-linked realisation on aspect or all of the output and (ii) much less volatile feedstock price drive the steep upside in Ebitda. Nat gas transmission segment Ebitda falls 1-2% due to greater price of fuel gas (linked to crude value).
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SOTP rises Rs 20/share for each and every $10 rise in typical crude value: Our fair worth estimate increases 14% applying the exact same multiples that we use in our base case to worth the enhanced nat gas trading and LPG small business income. Our Fair Value estimates at $70 is Rs 170 and at $80 is Rs 193.
NG trading, LPG profitability see highest enhance: Natural gas trading added benefits from the much less volatile Henry Hub linked sourcing price for c50% of its Spot volume and the widening differential of Asia Spot LNG (GAIL’s promoting value for the non-contracted portion) more than landed Henry Hub price. The LPG small business added benefits from low feedstock price (APM gas price) whilst realisations raise on greater crude value. GAIL can retain the LPG profitability advantage as LPG subsidies are practically nil presently posing no danger of an unforeseen burden.
Petchem profitability variety bound with steep rise in feedstock price: We see restricted upside possible to polyethylene income with feedstock charges increasing sharply on account of the rally in Asia Spot LNG value ($13+/mmbtu presently). The proportion of Asia Spot in feedstock mix will raise more than FY22E as 3-4mmscmd of US LNG gets allocated to fertiliser plants.
Pipeline InvIT could re-price transmission a number of: The proposed InvIT could re-price the valuation a number of of transmission small business from 6.5x to 9x lifting GAIL’s fair worth by 20% (Rs 30/sh) offered sizable assets are transferred. GAIL hasn’t disclosed which two pipelines it has proposed to give in the InvIT.
Stock disc $60 crude, upside attainable from sustained crude strength, Hold: If crude sustains in the $70s, GAIL’s FY22e Ebitda could see c15% upgrade opening up area for c15% upside possible from present levels. A possible InvIT listing could also yield 20% upside to our PT. However, any considerable correction in crude value remains the crucial danger. Maintain Hold as we see danger-reward balanced at present value.