Reduce GAIL; target of Rs 145: Emkay Global Financial

Emkay Global Financial's research report on GAIL

We recently visited GAIL’s Vijaipur site – the company’s central region hub. Major pipeline networks like HVJ-DVPL pass through it, while originating lines include GREP, VDPL, NFL and VAPL. The Complex houses compressor stations, 2 LPG production plants and a C2-C3 recovery plant (liquid feed goes to Pata via HVJ); new units like green H₂ (to commission in May-24) as well as smallscale LNG (ssLNG; already started) have also been set up. GAIL is expanding its C2-C3/LHC capacity by 192/100tpd. Mgmt stated that rich gas supplies are getting tighter, hence GAIL may look at ethane sourcing from USA for Pata via VLECs, imported through various terminals. The ADNOC LNG contracted is, however, rich. Vijaipur’s ongoing net-zero initiatives include conversion of gas turbines to electric, 5% H₂ blending at C2-C3, and control of fugitive emissions.

Outlook

Our valuation is based on SOTP-EV/EBITDA method, with investment at 30% holdco discount. Recall, we had assigned 6x blended target EV/EBITDA to the core business, with Dec-24E TP of Rs145/sh. We retain REDUCE, but would soon review our estimates, TP, recommendation. Key risks: adverse commodity price-margins, regulations, outages.

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GAIL - 12032024 - emkay