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GAIL’s heartline en route next leg of growth

Highlights of visit to GAIL’s Vijaipur plant in Madhya Pradesh

GAIL’s Vijaipur plant is a sprawling natural gas processing complex established in 1991, rated among the country’s leading gas plants. The team showcased the HVJ pipeline’s operational capabilities and shared details of key new energy initiatives: addition of large solar and green hydrogen facility with a Small-Scale LNG (SSLNG) plant which will steer the country’s energy transition.

GAIL’s heartline – Vijaipur natural gas pipeline - accounts for 60% of its overall network: GAIL contributes over 74% of India's natural gas transmission and operates the largest gas pipeline network in India, spanning approximately 16,080 km. The Central Region, including Vijaipur, manages nearly 50% (6,888 km) of this network. Its pipelines transmit ~33mmsmcd to key customers NFL (4.3mmscmd), CFCL (6.3mmscmd), DCM Shriram Kota (0.6mmscmd), OMCs, CGDs and connecting other pipeline networks. The plant processes 21mmscmd of C2C3, 15mmscmd of LPG (producing propane, LPG, pentane, and naphtha) used as feedstock at the PATA petchem plant (Gas processing unit block diagram cited below).

Vijaipur – epicenter of GAIL’s presence and achievements in India

In Jan’24, the C2C3 unit achieved its highest single-day production of 3,207.59mt and also recorded the highest monthly gas processing volume (C2C3+LPG) at 1230.72mmscm (average 39.70mmscmd). India's first SSLNG Unit was commissioned in November 2023, with a capacity of 36TPD on an investment of Rs 1-1.5bn.

A Green Hydrogen Project with a capacity of 4.3TPD, India's largest green hydrogen plant that uses renewable energy sources, is a clean fuel with immense potential for decarbonization. At a solar power cost of Rs3/kw and ~50-55kw per kg of hydrogen, the green hydrogen cost could be ~USD4-4.5/kg (solar power cost is the main driver for reduction in green hydrogen). GAIL’s Vijaipur successfully commenced 5% blending hydrogen in Indore's PNG network, furthering its commitment to cleaner energy solutions and paving the way forward for deeper research on hydrogen's potential in natural gas applications. Vijaipur is harnessing Solar Power with a three-pronged approach with a capacity of 20MW, which will significantly reduce reliance on conventional energy sources and promote environmental responsibility.

Electrification of Gas Turbines project focuses on reducing CO2 emissions by approximately 6,500TPA, it involves replacing gas turbines with high-efficiency motors and transitioning to electric drives.

Ongoing Net Zero Initiatives are slated to be achieved by 2040: gas turbines drives converted to electric drives, emission surveys, recovery of vapors in Naphtha TLG unit, sourcing green power and installing solar panels, offsetting carbon emissions through tree plantation and carbon credit purchases, to name a few.

Valuation

We believe GAIL’s EBITDA will record 31% CAGR over FY23-26e led by 36% CAGR in gas transmission EBITDA. Gas transmission business is ripe with bright prospects (contributing ~52% to EBITDA in FY26e, expected to rise further) while commodity business is a bit volatile. Despite the recent stock price rally, we foresee an upside basis our valuation, and maintain a BUY rating on the stock with an unchanged TP of Rs236, valuing it on a sum-of-parts basis (core business at Rs204, 10x EV/EBITDA and investments at Rs32).

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