GAIL - Final Tariff Order Enhances Optimism: Systematix

Systematix Research Report

Petroleum and Natural Gas Regulatory Board has come out with final integrated tariff order for GAIL India Ltd. at Rs 58.61/metric million British thermal unit, around 30% higher to the current tariff and 8.8% higher to our current assumption of Rs 53.9/mmbtu.

New tariff order is effective from April 01, 2023. Further, we attended the interaction meet with the GAIL’s top management and key highlights are:

Transmission:

Tariff Revision: PNGRB raised integrated tariff to Rs 58.61/mmbtu from an average of Rs 45/mmbtu in nine months-FY23 which is effective from April 01, 2023. Currently nearly 90% of volume (~96 million metric standard cubic metre per day) is flowing independently while 10% (~11 mmscmd) is flowing through multiple pipeline. Though, GAIL would study the order and may challenge the assumptions in coming weeks, if needed.

Volume guidance:

The company has guided for a volume of 120 mmscmd in FY24E with a 5% compound annual growth rate over the next few years. The company expects new tariff order to translate into ~Rs 18 billion addition to Ebitda at existing volume (~107 mmscmd). Incremental demand is expected to come from city gas distributions (up 4 mmscmd), power and fertilisers.

Lesser allocation of administered price mechanism for compressors: Further, they are receiving 0.65 mmscmd of APM gas for the compressors, down from 1.55 mmscmd within a year which is likely to see an annual impact of Rs 5 billion at current pricing scenario. Nonetheless, chances of getting completely out of allocation are also very high in near term which can have further negative impact on profitability.

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