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Expect to sign 2mt long-term LNG contract in 2011
The company seems confident of having adequate volumes of natural gas for the new pipelines it is in the process of laying or
completing. Salient points that emerged during discussions with the company are listed below:
The company thinks gas supply could increase to 250mmscmd in FY14 from the current 170mmscmd. A large part of this
volume increase is expected to come from LNG imports. GAIL is also actively pursuing medium term LNG contracts and
could sign these shortly.
Phase 1 of the Dhabol-Bangalore pipeline is likely to be operational by March 2012, connecting Goa on its way to
Bangalore. This is line with the previous guidance. The second phase to Bangalore is expected to be completed by Dec
2012. In the meantime, orders for the Kochi-Bangalore-Mangalore pipeline have been placed. The aim is to begin
operations ahead of the opening of the Kochi LNG terminal, scheduled for March 2013.
The expansion of the petrochemical capacity unit to 900,000 tonnes from the current level of 400,000 tonnes is expected to
be completed by Dec 2013, a few months ahead of schedule.
Valuation and risks
We value the core businesses of natural gas and LPG transmission, natural gas marketing, petrochemicals and LPG at a PE
of 13.5x on FY12e core EPS. Our multiple reflects uncertainty related to under-recovery concerns.
We believe investment risks include any downward revision in GAIL’s tariff, a higher-than-expected share in underrecovery,
or an inability to obtain approvals from the regulator. Potential catalysts include: updates on timely completion
of its pipelines, new gas supply visibility, or discovery in its exploration blocks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Expect to sign 2mt long-term LNG contract in 2011
The company seems confident of having adequate volumes of natural gas for the new pipelines it is in the process of laying or
completing. Salient points that emerged during discussions with the company are listed below:
The company thinks gas supply could increase to 250mmscmd in FY14 from the current 170mmscmd. A large part of this
volume increase is expected to come from LNG imports. GAIL is also actively pursuing medium term LNG contracts and
could sign these shortly.
Phase 1 of the Dhabol-Bangalore pipeline is likely to be operational by March 2012, connecting Goa on its way to
Bangalore. This is line with the previous guidance. The second phase to Bangalore is expected to be completed by Dec
2012. In the meantime, orders for the Kochi-Bangalore-Mangalore pipeline have been placed. The aim is to begin
operations ahead of the opening of the Kochi LNG terminal, scheduled for March 2013.
The expansion of the petrochemical capacity unit to 900,000 tonnes from the current level of 400,000 tonnes is expected to
be completed by Dec 2013, a few months ahead of schedule.
Valuation and risks
We value the core businesses of natural gas and LPG transmission, natural gas marketing, petrochemicals and LPG at a PE
of 13.5x on FY12e core EPS. Our multiple reflects uncertainty related to under-recovery concerns.
We believe investment risks include any downward revision in GAIL’s tariff, a higher-than-expected share in underrecovery,
or an inability to obtain approvals from the regulator. Potential catalysts include: updates on timely completion
of its pipelines, new gas supply visibility, or discovery in its exploration blocks.
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