Target: ₹266
CMP: ₹234
The government’s ambitious plan to increase the share of natural gas in the energy mix from 5.7 per cent to 15 per cent by FY31F highlights the immense growth potential in the gas transmission business. The implementation of the National Gas Grid and the Unified Tariff Regime will further enhance gas accessibility, ensuring uniform transportation costs across regions.
Additionally, GAIL India is set to benefit from an expected tariff hike of ₹8-10/scm due to discrepancy in compression gas costs, enabling the company to charge a higher tariff. The company has also secured strategic long-term LNG supply contracts, including deals with ADNOC and Vitol, along with a 20-year agreement with Qatar Energy, achieving savings of $0.8/mmBtu.
These developments are expected to drive GAIL India’s transmission volume to post a CAGR of 8.4 per cent over FY24-30, reinforcing its leadership in the gas transmission market.
The volume growth trajectory is promising for GAIL India, paving the way for a rise in its earnings. We have valued the stock at its 10-year historical 1SD, retaining our Add rating on it with a higher target price of ₹261 (₹121 earlier). The downside risks could arise from a rapid rise in LNG prices or any change in the government’s policy for the sector, particularly for CGD companies.