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MOSL: GAIL India (Neutral)-Tariff order disappointment continues-worsening outlook for the transmission business segment

GAIL India: Tariff order disappointment continues; worsening outlook for the transmission business segment

(GAIL IN, Mkt Cap USD10.2b, CMP INR312, TP INR346, 11% Upside, Neutral)

 

• The Petroleum & Natural Gas Regulatory Board (PNGRB) has announced tariff for the K.G. Basin Natural Gas Pipeline Network (KGBNGPL) at INR16.14/mmbtu v/s the proposed INR47.20/mmtbu by GAIL.
• As against the current tariff of INR45.32/mmbtu, the revised tariff is ~65% lower, and would bear an impact of -2% on the FY20/21 EPS.
• The pipeline currently handles ~5mmscmd of volumes, lowering PAT by ~INR1,500m.

 

KGBNGPL case

• PNGRB in its Mar’16 order issued final initial tariff for the KGBNGPL pipeline at INR45.32/mmbtu v/s the proposed INR180.77/mmbtu by GAIL.
• In a letter dated 22nd Oct’18, GAIL proposed tariff revision for KGBNGPL at INR47.20/mmbtu and an extension of 10 years to the life of the pipeline.
• However, PNGRB approved a tariff ~65% lower — sharply reduced from the current INR45.32/mmbtu to INR16.14/mmbtu, effective 1st Jul’19.
• Sharp reduction in the revised tariff is on account of huge divergence in (a) opex, (b) future capex, and (b) unaccounted gas loss guidance by GAIL v/s the PNGRB approval.