GAIL shares unmoved after PNGRB fixes integrated tariff; what should investors do?

GAIL (India) shares traded flat on Thursday after Petroleum and Natural Gas Regulatory Board (PNGRB) announced integrated tariff involving 10 connected pipelines at Rs 58.61/MMBtu, down from Rs 68.55 filed by the company and Street expectations (at least Rs 50 to Rs 61/mmbtu).

Shares of the company were trading at Rs 105.50 on NSE at 12:20 pm, by Re 0.10 or 0.09%.

Brokerage JM Financial Institutional Securities said the revised integrated tariff of Rs 58.61/mmbtu is positive for the company and may increase its gas transmission segment's annual revenue by Rs 20 billion to around Rs 80 billion at 3QFY23 volume of 104 mmcmd and further to over Rs 90 billion in FY24, assuming gas transmission volume jumps to 120 mmcmd.

The management expects the government to accept the Kirit Parikh (KP) committee recommendations before 31 March 2023, JM Financial said.

“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 Rs 125 (from Rs 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 versus 6.5% currently,” it said further.

Meanwhile, brokerages Jefferies and Emkay have a ‘Hold’ recommendation on the stock with price targets of Rs 110 and Rs 115, respectively.

“Take or pay adjustments in FY23 and exclusion and overlap of certain pipelines have impacted book-level revisions, but by GAIL’s own admission, the weighted average tariff is Rs 44/MMBtu. Hence, this hike is 33% for the integrated network. We believe, on a blended basis, it is 30% ex-take or pay,” Emkay said.

“GAIL is favourably placed, though the recent stock outperformance prices in most positives. Thus, we downgrade our rating from Buy to Hold – although if gas price and capacity appeals are accepted, another 10% tariff hike can accrue (Rs 65/mmbtu), which along with better gas marketing margins (we have built-in Rs 25bn EBITDA) are upside risks,” Emkay said further.

Global brokerage Jefferies sees a 17% Ebitda increase in FY24E with part of the benefit offset by higher operating costs. LPG profitability will be impacted by a sharp fall in international prices, it said, while raising the target price to Rs 110 and maintaining a Hold rating.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)