Target: ₹170
CMP: ₹216.95
In next 3-4 years, we expect India’s gas consumption to rise from 191mmscmd in FY24 to 218mmscmd. While GAIL’s transmission would grow by 8 per cent c in FY24-26, trading is expected to grow a tad lower (6 per cent). Petrochemical and LPG are expected to remain muted.
India’s trunk gas pipeline network is expected to rise from 23,391km in FY24-end to 27,516km in the next 3-4years. GAIL’s own network is expected to rise from 16,240km to 19,970km (including spur lines) in the next 2-3years.
With already connected consumers (except power) consuming optimal amount of gas, and fewer new consumer additions, we expect GAIL’s transmission volume to rise from 120mmscmd in FY24 to 130/140 mmscmd in FY25/26E. This includes seasonal boost from the power sector. Bringing natural gas under the GST ambit would bring down gas cost and aid volume growth too.
However, increasingly, consumers are securing their contracts directly, thereby dampening the expected growth rate in trading. Incremental petrochem projects are also margin dilutive. Considering the slow growth in transmission and low return ratios for petrochem expansions, we remain negative on the stock with a Sell rating and target price of ₹170, valuing it at 12x FY26 standalone EPS and adding the value of investments.