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GAIL (India) (GAIL)
Energy
Management bullish on Indian gas story. GAIL management presented an upbeat
picture of the domestic gas supply scenario and progress on its expansion plans in its
analyst meet. The key takeaways are—(1) management’s expectation of significant
ramp-up in gas supply in India, (2) guidance of 135 mcm/d of transmission volumes in
FY2012E, (3) significant capex of `286 bn to drive expansion plans in FY2012-14E and
(4) steady progress on ongoing pipeline and petrochemical projects. We maintain our
ADD rating on the stock with a target price of `525.
Guidance for gas transmission volumes of 135 mcm/d in FY2012E
GAIL management expects its gas transmission volumes to increase to 135 mcm/d in FY2012E
versus 120 mcm/d in 4QFY11. We note that this is higher versus our assumption of 124 mcm/d.
We see the management’s guidance on transmission aggressive given (1) decline in production
from RIL’s KG D-6 block to 48 mcm/d currently and (2) limited incremental gas supply from other
sources. However, we do not rule out some upside to our assumptions from higher LNG imports.
Management expects domestic gas supply to rise to 215 mcm/d by FY2015E
GAIL management projects domestic gas supply to increase to 215 mcm/d by FY2015E versus 142
mcm/d in FY2011. The management expects incremental supply from (1) RIL’s KG D-6 block (+20
mcm/d), (2) CBM (+6 mcm/d), (3) new fields (+16 mcm/d) and (4) additional potential (+30
mcm/d). Exhibit 1 gives our gas supply projections; we have similar estimates on RIL’s gas ramp-up
but have more conservative estimates on other sources. We estimate domestic gas supply to
increase to 181 mcm/d by FY2015E led by ramp-up in supply from RIL’s KG D-6 block to 80
mcm/d. We estimate total gas supply in India to increase to 263 mc/d (including imported LNG) in
FY2015E versus 178 mcm/d in FY2011.
Steady progress on development projects
GAIL management highlighted the progress on its several projects which included (1) new pipeline
projects, (2) petchem expansion project at Pata, (3) Dabhol LNG terminal, (4) Assam gas cracker
and (5) city gas distribution networks. The management estimates a capex of `286 bn to be
incurred in FY2012-14E with `111 bn in pipeline projects and `83 bn in petrochemical projects.
Retain ADD with a target price of `525
We maintain our ADD rating on the stock noting that it offers a 16% potential upside to our 12-
month SOTP-based target price of `525. We do not see downside risk to our transmission volumes
assumption in light of significantly higher guidance from the management. Key downside risk
stems from a higher-than-expected subsidy burden.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GAIL (India) (GAIL)
Energy
Management bullish on Indian gas story. GAIL management presented an upbeat
picture of the domestic gas supply scenario and progress on its expansion plans in its
analyst meet. The key takeaways are—(1) management’s expectation of significant
ramp-up in gas supply in India, (2) guidance of 135 mcm/d of transmission volumes in
FY2012E, (3) significant capex of `286 bn to drive expansion plans in FY2012-14E and
(4) steady progress on ongoing pipeline and petrochemical projects. We maintain our
ADD rating on the stock with a target price of `525.
Guidance for gas transmission volumes of 135 mcm/d in FY2012E
GAIL management expects its gas transmission volumes to increase to 135 mcm/d in FY2012E
versus 120 mcm/d in 4QFY11. We note that this is higher versus our assumption of 124 mcm/d.
We see the management’s guidance on transmission aggressive given (1) decline in production
from RIL’s KG D-6 block to 48 mcm/d currently and (2) limited incremental gas supply from other
sources. However, we do not rule out some upside to our assumptions from higher LNG imports.
Management expects domestic gas supply to rise to 215 mcm/d by FY2015E
GAIL management projects domestic gas supply to increase to 215 mcm/d by FY2015E versus 142
mcm/d in FY2011. The management expects incremental supply from (1) RIL’s KG D-6 block (+20
mcm/d), (2) CBM (+6 mcm/d), (3) new fields (+16 mcm/d) and (4) additional potential (+30
mcm/d). Exhibit 1 gives our gas supply projections; we have similar estimates on RIL’s gas ramp-up
but have more conservative estimates on other sources. We estimate domestic gas supply to
increase to 181 mcm/d by FY2015E led by ramp-up in supply from RIL’s KG D-6 block to 80
mcm/d. We estimate total gas supply in India to increase to 263 mc/d (including imported LNG) in
FY2015E versus 178 mcm/d in FY2011.
Steady progress on development projects
GAIL management highlighted the progress on its several projects which included (1) new pipeline
projects, (2) petchem expansion project at Pata, (3) Dabhol LNG terminal, (4) Assam gas cracker
and (5) city gas distribution networks. The management estimates a capex of `286 bn to be
incurred in FY2012-14E with `111 bn in pipeline projects and `83 bn in petrochemical projects.
Retain ADD with a target price of `525
We maintain our ADD rating on the stock noting that it offers a 16% potential upside to our 12-
month SOTP-based target price of `525. We do not see downside risk to our transmission volumes
assumption in light of significantly higher guidance from the management. Key downside risk
stems from a higher-than-expected subsidy burden.
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