Sharekhan's research report on GAIL (India)
A sharp rally in Asian spot LNG price to $20/mmBtu makes GAIL’s US LNG contracts attractive as it is available at half the spot LNG prices. We thus expect GAIL’s gas trading margin/EBITDA to recover to FY19 level (EBITDA of Rs. 2,859 crore). India’s gas consumption has increased by 11.3% to ~173 mmscmd in July 2021 versus July 2019 and this augurs well for growth in GAIL’s gas transmission volumes (we expect a 7% CAGR over FY21-24E). The government’s National Monetisation Pipeline plans to monetise GAIL’s two gas pipelines (2,229 km) in FY22E and another 5,925 km of pipelines over FY23E-25E. Asset monetisation could unlock value for GAIL.
Recent under-performance in stock price provides investors an entry point given attractive valuation of 6x FY23E EVE/EBITDA on expectation of a 24% PAT CAGR over FY21-24E. We maintain a Buy on GAIL with an unchanged PT of Rs. 196.
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