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We attended GAIL’s analyst meet today. During the interaction, the management highlighted that the revised integrated tariff of INR 58.61/mmbtu is a positive for the company and is likely to result in its gas transmission segment annual revenue increasing by ~INR 20bn to around ~INR 80bn at 3QFY23 volume of 104mmcmd, and rising further to +INR 90bn in FY24 assuming gas transmission volume jumps to 120mmcmd. The management expects the government to accept the Kirit Parikh (KP) committee recommendations before 31st Mar’23. It confirmed that gas supply from Gazprom was being restored gradually and guided for transmission volume of 120mmcmd in FY24 and growth of 5% CAGR thereafter. It also guided for gas trading EBITDA of INR 35bn in FY24 and said +50% of US LNG volume had been sold in India back-to-back on US HH (Henry Hub) benchmark. On the petchem front, the management disclosed that the Pata petchem plant was operating at 100% utilisation and reiterated its aggressive capex plans on the petchem business. We have raised our FY24-25 EBITDA by ~4% to account for the revised gas pipeline tariff and higher petchem utilisation; our TP has been revised to INR 125 (from INR 120). We maintain BUY on reasonable valuation and steady growth visibility in the gas transmission business given the government’s target to increase the share of gas in India’s energy mix to ~15% by 2030 (vs. ~6.5% currently).

* Revised integrated pipeline tariff to boost GAIL’s gas transmission revenue by INR 20bn; government likely to accept KP recommendations before 31st Mar’23: The revised integrated tariff of INR 58.61/mmbtu in higher than the earlier adjusted tariff of around INR 43/mmbtu and will be effective from 1st Apr’23. The management said this is a positive for the company (though it is slightly lower than what GAIL was expecting) and is likely to result in GAIL’s gas transmission segment annual revenue rising by ~INR 20bn to around ~INR 80bn at 3QFY23 volume of 104mmcmd (from around INR 60bn in FY23E), and increasing further to +INR 90bn in FY24 assuming gas transmission volume jumps to 120mmcmd. The management highlighted that every 1mmcmd of transmission volume at the revised tariff will give revenue of INR 840mn. Separately, the management said it expects the government to accept the KP committee recommendations before 31st Mar’23, though there is a possibility that the annual hike in ceiling price could be raised to USD 0.7/mmbtu (vs. USD 0.5/mmbtu suggested by the KP committee).

* Gazprom gas supply getting restored gradually; guides for transmission volume of 120mmcmd in FY24 and 5% CAGR growth thereafter: The management confirmed that LNG supply from Gazprom had resumed with two cargoes scheduled each in Mar’23 and Apr’23 (vs. 3-4 cargoes per month that was the case before the supply disruption began last year). But it highlighted that there was limited clarity as of now on supply from May onwards. Hence, GAIL has withdrawn gas supply cuts to its customer’s w.e.f. 16th Mar’23 (which was imposed after Gazprom suspended gas supplies). The company has guided for transmission volume of 120mmcmd in FY24 (vs. 104mmcmd in 3QFY23) and growth at 5% CAGR thereafter, driven by the government’s target to boost the share of gas in India’s energy mix to 15% by 2030 (vs. around 7% currently). FY24 volume of 120mmcmd is based on volume of 104mmcmd in 3QFY23, additional Gazprom volume of 7mmcmd, additional volume of 7mmcmd from the fertiliser sector (from Barauni and Sindri plants) and additional CGD sector volume growth of 2-3mmcmd.

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