Petroleum and natural Gas Regulatory Board (PNGRB) has approved the long-pending tariff revision for HVJ/HVJ expansion pipelines, thereby taking care of the tariff revisions until FY24. Key highlights: (i) Blended tariff at Rs 1.7/scm is 11.5% lower than our estimate of Rs 2/scm, but 0.4% higher than the earlier tariff; (ii) however, this is 58% below GAIL’s submission (Rs 4.1/scm) due to much lower tariffs for the HVJ pipeline; (iii) with the two pipelines contributing over 60% to GAIL’s overall throughput, the tariff revision prompts a 9.9%/9.3% cut in FY20/21e transmission Ebitda; and (iv) however, given the PNGRB’s volume assumptions of 80mmscmd (currently 65mmscmd), we believe GAIL is likely to appeal the PNGRB order. We are revising down the TP by 4.4% to Rs 367/share due to a 4.7%/4.2% cut in FY20/21e Ebitda. Retain Hold as the stock is fairly priced at 5.3x FY21E EV/Ebitda.
Tariff hike misses estimate; also lower than GAIL submission
According to PNGRB regulations, instead of separate tariffs for the two pipelines, an integrated tariff will be levied on combined volumes. Consequently, integrated tariff will drive future revenue. The hike of just 0.4% is 20% lower than what we had factored in. The revised tariff also significantly undercuts the tariff submitted by GAIL.
