MOSL: GAIL INDIA (Buy)-Reiterated subsiding US contract risks
(GAIL IN, Mkt Cap USD6.1b, CMP INR103, TP INR150, 45% Upside, Buy)
The company organized a visit to its Horizontal Directional Drilling (HDD) Site at Damodar river, Durgapur along with interaction with the senior management. Please find main highlights of the same:
Phase-I of JHBDPL already commissioned; rest on track
** Phase-1 of 753km from Phulpur to Dobhi, connecting Gorakhour, Patna and Barauni has already been commissioned along with the six Geographical Areas (GAs) on this length.
** Phase-II of 901km connecting Dobhi to Durgapur and Dhamra to Angul is expected to be completed by Dec’20. Phase-III of 1,001km from Bokaro-Angul and Durgapur-Kolkata is also expected to be completed by Dec’20.
** Barauni-Guwahati pipeline of 716km is expected to be completed by Dec’21.
Matix to take ~2.5mmscmd of gas
** Matix was already commissioned but had to stop as it did not receive the minimum quantity of natural gas sufficient to keep the operations running.
** GAIL is in the process of completing the ~1.5km HDD stretch across Damodar river, post which, Matix would be able to receive gas from GAIL.
** GAIL has already executed a firm contract for 1.5mmscmd with Matix. It is expected to take additional 1mmscmd. Matix may also double its capacity going forward, thereby increasing the demand of gas.
Expect radical changes before commissioning of Phase-II/III
** Consumers on Phase-II/III may face as much as USD2-3/mmBtu of transmission tariff. This would be substantial compared with the domestic APM price of USD3.6/mmBtu as well as spot LNG prices of ~USD3/mmBtu.
** Such high transmission cost may force a radical change in tariff determination bringing back the focus on unified tariffs.
** The company guides that a wholly owned subsidiary may be created for transmission in order to separate transmission and trading segments.
Gail India is engaged in the natural gas, liquified natural gas ("LPG"), liquid hydrocarbons and petrochemicals exploration and production and city gas distribution through its natural gas trunk pipelines covering a length of around 7000 km and over 1900 km of LPG pipeline transmission network. Co. is also engaged in the telecom business with the network of approx. 13,000 km throughout India. Co. operates six primary business segments: Transmission Services, Natural Gas Trading, Petrochemicals, LPG and other Liquid Hydrocarbons, GAILTEL and City Gas Distribution.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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