GAIL - Poised To Gain From Indian Gas Market Prospects: Nirmal Bang

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Nirmal Bang Report

Our optimism on GAIL India Ltd. is based on improved gas supply – two liquefied natural gas cargoes are likely per month from Gazprom in April 2023 and May 2023 and the steep 23% month-on-month fall in average Japan Korea Marker LNG price in January 2023 has reversed the decline in gas consumption seen until December 2022- Jan-23; gas consumption is up 2.2% YoY.

And, JKM LNG average price in March 2023 has plunged 55% YoY to $14.2/metric million British thermal unit versus the Dec-22 average. This is positive for gas transmission and gas marketing volume growth - we have raised transmission volume by 4.5%/4.1% for FY24E/FY25E.

We have also raised gas marketing Ebitda by 46%/64%/63.7% for FY23E/FY24E/FY25E from the beaten down old assumptions to align it with the management’s recent confident guidance of ~Rs 25 billion. The increase in integrated tariff by Petroleum and Natural Gas Regulatory Board for GAIL’s gas grid of nine pipelines (including integrated high voltageJ) is positive for the gas transmission segment earnings.

Key concerns include:

Potential risk of a reversal in the commodity cycle, which could hurt gas marketing, petchem and liquefied petroleum gas and hydrocarbons segments - combined share at 40% of GAIL’s Ebtda (FY20),
Investments in an already crowded polypropylene market and,
the recent success in its bid for failed purified terepthalic acid project JBF petrochem at an aggregate capital commitment of more than Rs 40 billion.

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Nirmal Bang GAIL-Company Update.pdf

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Also Read: GAIL — PNGRB Integrated Pipeline Tariff Hike To Improve Transmission Revenue: ICICI Direct

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