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UBS Investment Research
GAIL (India) Ltd.
C ompany visit — key takeaways
GAIL management upbeat on future demand
We met with GAIL’s management to discuss gas sourcing and to get an update on
the status of its projects. The company is confident about the long-term outlook for
gas in the country, given its ease of use and economic benefits over alternatives.
Although we are still cautious on the attractiveness of imported LNG, GAIL
believes that the industrial sector has the ability to absorb as much gas as is
supplied.
Company is confident that lower KG-D6 volumes will have little effect
GAIL is confident that gas volumes will grow to 134mmscmd in FY13 from
118mmscmd currently due to increased production from ONGC and higher LNG
imports including those at Dabhol. It believes that the industrial sector, which
currently offtakes ~6-7% of GAIL volumes, has significant potential and can
absorb upto US$15/mmbtu of gas prices. GAIL’s anchor clients along its pipelines
are mainly fertiliser and large power plants. As these are the priority sectors for
KG-D6 gas, GAIL is relatively immune to falling volumes from the field at current
levels.
Debottlenecking of the petrochemicals plant
The contribution of the petrochemicals business to PBT has steadily increased to
28% in FY10. Due to shutdown of the petrochemicals plant, we believe the
performance of the petrochemicals business will be muted in FY11. However, we
expect volumes to improve to 0.5mmtpa in FY12 from 0.42/0.46mmtpa in FY10/
FY11 after the debottlenecking is complete.
Valuation: maintain Buy rating with DCF-based price target of Rs580
At 11.8x FY13E PE and a dividend yield of 4.2%, the stock looks attractive, in our
view. We expect gas volumes to grow at 12%pa for the next five years.
GAIL (India) Ltd.
GAIL is India's principal gas transmission company and owns cross-country gas
pipelines. It is 57% owned by the Government of India (GoI). Gas tranmission is
a fixed returns business in India, which is regulated by the GoI. Its FY10
turnover was US$5.4bn.
Statement of Risk
We believe the risks to our estimates include regulatory risks and uncertainty in
gas supply and delay in the pipeline capex. A higher upstream subsidy payout
poses additional risk to GAIL.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
GAIL (India) Ltd.
C ompany visit — key takeaways
GAIL management upbeat on future demand
We met with GAIL’s management to discuss gas sourcing and to get an update on
the status of its projects. The company is confident about the long-term outlook for
gas in the country, given its ease of use and economic benefits over alternatives.
Although we are still cautious on the attractiveness of imported LNG, GAIL
believes that the industrial sector has the ability to absorb as much gas as is
supplied.
Company is confident that lower KG-D6 volumes will have little effect
GAIL is confident that gas volumes will grow to 134mmscmd in FY13 from
118mmscmd currently due to increased production from ONGC and higher LNG
imports including those at Dabhol. It believes that the industrial sector, which
currently offtakes ~6-7% of GAIL volumes, has significant potential and can
absorb upto US$15/mmbtu of gas prices. GAIL’s anchor clients along its pipelines
are mainly fertiliser and large power plants. As these are the priority sectors for
KG-D6 gas, GAIL is relatively immune to falling volumes from the field at current
levels.
Debottlenecking of the petrochemicals plant
The contribution of the petrochemicals business to PBT has steadily increased to
28% in FY10. Due to shutdown of the petrochemicals plant, we believe the
performance of the petrochemicals business will be muted in FY11. However, we
expect volumes to improve to 0.5mmtpa in FY12 from 0.42/0.46mmtpa in FY10/
FY11 after the debottlenecking is complete.
Valuation: maintain Buy rating with DCF-based price target of Rs580
At 11.8x FY13E PE and a dividend yield of 4.2%, the stock looks attractive, in our
view. We expect gas volumes to grow at 12%pa for the next five years.
GAIL (India) Ltd.
GAIL is India's principal gas transmission company and owns cross-country gas
pipelines. It is 57% owned by the Government of India (GoI). Gas tranmission is
a fixed returns business in India, which is regulated by the GoI. Its FY10
turnover was US$5.4bn.
Statement of Risk
We believe the risks to our estimates include regulatory risks and uncertainty in
gas supply and delay in the pipeline capex. A higher upstream subsidy payout
poses additional risk to GAIL.
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