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GAIL
We met GAIL’s senior management team recently. Key highlights:
Transmission volumes: GAIL remains confident that growth in gas availability will
drive transmission volumes in the next 3-4 years - GAIL expects volumes to rise
from current levels (118mmscmd) to 225-250mmscmd over the next 3-4 years.
Drivers for the increase, in the company’s view would be: (1) RIL ramping back up
to 60mmscmd (+15mmscmd over current levels), (2) 20-25 mmscmd from ONGC,
(3) Increasing LNG imports, particularly with the commissioning of the Kochi and
Dabhol terminals and (4) ~25mmscmd from other NELP blocks.
Capex/Expansion plans: The company has a capex plan of Rs450bn upto FY16 –
excluding the Rs150bn already spent on pipelines. The company plans to spend
c.Rs170bn on its pipeline network/CGD ventures; Rs80-90bn on the petrochemical
expansion at Pata; Rs100bn on new JVs, including the Dabhol terminal; Rs30bn on
its E&P initiatives, with the rest earmarked for M&A. The company expects to
maintain a 1:1 gearing ratio post these expansions.
Concern on returns: The company addressed investor concerns on incremental
returns from projects without the 12% ROCE assurance – the management continues
to target 12-14% returns from all new pipeline projects. The Surat-Paradip pipeline
was won through competitive bidding, though the company expects to earn ~15%
ROCE on the same. On the Brahmaputra Cracker project—53% (Rs88bn) is capital
subsidy from the GoI.
Execution delays: The management highlighted some of the delays/problems faced
in the execution of pipeline projects – while GAIL usually gets support from local
administration, delays are sometimes seen. GAIL is however exempt from the land
acquisition act as the pipeline projects are longitudinal and land is returned to
original owners. The Jagdishpur-Haldia pipeline, is on hold, due to lack of gas from
the KG-D6 field, but the company is mulling restarting the same now.
Subsidies: The management felt the upstream share of subsidies for this fiscal year
will remain at 33% , and that the final share for last year (38.7%) was an aberration.
However, with elevated crude levels, the overall subsidy bill is very high, and the
management feels changes to the mechanism is needed – with aid being given only to
those who are in need.
Inter-PSU investments: The management was of the view that inter-PSU
divestment is a real possibility – with oil PSUs having made gains in the last such
round. However, they did point out that with its large capex plans, and subsidy
payouts, GAIL does not have much spare cash to participate in such a divestment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GAIL
We met GAIL’s senior management team recently. Key highlights:
Transmission volumes: GAIL remains confident that growth in gas availability will
drive transmission volumes in the next 3-4 years - GAIL expects volumes to rise
from current levels (118mmscmd) to 225-250mmscmd over the next 3-4 years.
Drivers for the increase, in the company’s view would be: (1) RIL ramping back up
to 60mmscmd (+15mmscmd over current levels), (2) 20-25 mmscmd from ONGC,
(3) Increasing LNG imports, particularly with the commissioning of the Kochi and
Dabhol terminals and (4) ~25mmscmd from other NELP blocks.
Capex/Expansion plans: The company has a capex plan of Rs450bn upto FY16 –
excluding the Rs150bn already spent on pipelines. The company plans to spend
c.Rs170bn on its pipeline network/CGD ventures; Rs80-90bn on the petrochemical
expansion at Pata; Rs100bn on new JVs, including the Dabhol terminal; Rs30bn on
its E&P initiatives, with the rest earmarked for M&A. The company expects to
maintain a 1:1 gearing ratio post these expansions.
Concern on returns: The company addressed investor concerns on incremental
returns from projects without the 12% ROCE assurance – the management continues
to target 12-14% returns from all new pipeline projects. The Surat-Paradip pipeline
was won through competitive bidding, though the company expects to earn ~15%
ROCE on the same. On the Brahmaputra Cracker project—53% (Rs88bn) is capital
subsidy from the GoI.
Execution delays: The management highlighted some of the delays/problems faced
in the execution of pipeline projects – while GAIL usually gets support from local
administration, delays are sometimes seen. GAIL is however exempt from the land
acquisition act as the pipeline projects are longitudinal and land is returned to
original owners. The Jagdishpur-Haldia pipeline, is on hold, due to lack of gas from
the KG-D6 field, but the company is mulling restarting the same now.
Subsidies: The management felt the upstream share of subsidies for this fiscal year
will remain at 33% , and that the final share for last year (38.7%) was an aberration.
However, with elevated crude levels, the overall subsidy bill is very high, and the
management feels changes to the mechanism is needed – with aid being given only to
those who are in need.
Inter-PSU investments: The management was of the view that inter-PSU
divestment is a real possibility – with oil PSUs having made gains in the last such
round. However, they did point out that with its large capex plans, and subsidy
payouts, GAIL does not have much spare cash to participate in such a divestment.
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