MOSL: GAIL INDIA (Neutral)-More tariff hikes in the offing? GAIL proposes higher tariffs for HVJ

GAIL INDIA: More tariff hikes in the offing? GAIL proposes higher tariffs for HVJ, HVJ upgradation

(GAIL IN, Mkt Cap USD10.5b, CMP INR342, TP INR385, 13% Upside, Neutral)

• In September 2018, the Petroleum and Natural Gas Regulatory Board (PNGRB) approved the final initial tariffs for three pipeline networks of GAIL (including sub-networks) and two pipelines of GSPL, with effect from FY19.
• GAIL has submitted final initial tariff proposals for the Hazira-Vijaipur-Jagdishpur (HVJ) pipeline and for HVJ upgradation, which account for 62% of total transmission.
• GAIL's EPS should increase by 68% in FY20 if PNGRB approves GAIL's proposals.

 HVJ and HVJ upgradation account for maximum gas transmission

• In FY18, actual transmission volume for GAIL stood at 105mmscmd. Of this, HVJ accounted for 29.5mmscmd and HVJ upgradation accounted for 35.9mmscmd, both accounting for 62% of total transmission.
• GAIL charges levelized tariff of INR25.46/mmBtu on HVJ and INR53.65/mmBtu on HVJ upgradation. It has proposed increasing both tariffs to INR175.2/mmBtu and INR88.09/mmBtu, respectively.
• Our estimate suggests that if both tariffs are approved, then it would increase the GAIL’s EPS by 68% in FY20. But, revisions in September 2018 show that PNGRB’s approved tariffs are ~60% lower than those proposed by companies.