Transmission is poised for sturdy development on gas availability along new pipelines and unified tariffs. Natgas inclusion beneath GST really should have little positive volume effect but transmission tariff cuts, petchem oversupply and domestic gas cost floor are headwinds. A sizable pipeline. InvIT could give 20% stock upside but appears unlikely. We see restricted upside devoid of additional crude rally and initiate at Hold, SOTP-based PT of Rs 145 noting <10% ROCE more than FY21-24E.
7.5% vol Cagr in transmission more than FY21-24E, ROCE to stay sub-10%. We anticipate cumulative volume development of 26mmscmd on a low FY21E base driven by fertilizer, refining and CGD along its new pipelines. With tariffs probably to be lowered c.5% (calc) to adjust for reduced corporate tax price, segment ROCE will stay in single digits.
Trading volatility could cut down, RIL’s domgas a threat. Revived SOE fertilizer plants could consume 10mmscmd of US LNG by FY24E decreasing trading profit volatility. But fertilizer plants could come across RIL-BP’s domestic gas more affordable if future gas auctions are priced at a affordable slope to crude posing threat to Gail’s US LNG volumes. Profitability headwinds for polymer enterprise. China aims to raise self-sufficiency in polyethylene (PE) by adding 20% of present international capacity more than CY21-23E probably weighing on PE cost. New LNG investment drying up in CY16-17 and Covid-connected building delays are anticipated to strengthen LNG cost more than CY22-25E probably dragging PE profitability. LPG profitability buoyant, floor cost on domestic gas headwind. Decade low domestic gas cost and rallying crude are supportive of profitability. A regulated floor to domestic gas cost is a essential threat.
Limited upside from inclusion of all-natural gas beneath GST. GAIL’s transmission and LPG production segments could claim ~Rs 3.5bn (calc) of input tax credit stranded today but are probably to pass these by means of to prospects.
Industrial prospects could boost economics by 5-13.5% driving some upside to transmission and trading vol.
Sizable pipeline InvIT could rerate stock. The proposed InvIT could re-price the valuation many of transmission enterprise from 6.5x to 9x lifting GAIL’s fair worth 20% (Rs 30/sh) offered sizable assets are transferred. But a little providing appears probably offered 3 pipelines contribute 70% of revenues.