Initiate GAIL coverage with ‘hold’; SOTP-based TP of Rs 145

Transmission is poised for strong growth on gas availability along new pipelines and unified tariffs. Natgas inclusion under GST should have small positive volume impact but transmission tariff cuts, petchem oversupply and domestic gas price floor are headwinds. A sizable pipeline. InvIT could give 20% stock upside but looks unlikely. We see limited upside without further crude rally and initiate at Hold, SOTP-based PT of Rs 145 noting <10% ROCE over FY21-24E.

7.5% vol Cagr in transmission over FY21-24E, ROCE to remain sub-10%. We expect cumulative volume growth of 26mmscmd on a low FY21E base driven by fertilizer, refining and CGD along its new pipelines. With tariffs likely to be lowered c.5% (calc) to adjust for lower corporate tax rate, segment ROCE will remain in single digits.