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Hike in gas pipeline tariffs likely to boost FY19 earnings of GAIL, GSPL

CLSA has raised the target price of GAIL and GSPL to Rs 450 and Rs 270.

, ET Bureau|
Updated: Oct 02, 2018, 02.24 PM IST
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GAIL pipelines, for which tariffs have been raised, transport about 18 per cent of total transmission volumes.
The steep increase in pipeline tariffs for GAIL and GSPL, India’s two leading gas transmission companies, could lift their FY19 earnings growth by 5-20 per cent.

Gas regulator Petroleum and Natural Gas Regulatory Board (PNGRB) sets tariffs once in five years based on parameters such as utilisation, capital expenditure, and operating expenses incurred on pipelines. Thanks to an upward revision in the assumption of average tariff compared with Street estimates for the next five years due to the recent pipeline tariff, the net present value—summation of the current value of earnings of future earnings--of pipelines is expected to increase.

This could result in the higher target prices for GAIL and GSPL. CLSA has raised the target price of GAIL and GSPL to Rs 450 and Rs 270, from an earlier target of Rs 435 and Rs 240, respectively.

PNGRB increased the transportation tariff of some pipelines of GAIL in the range of 54 per cent-691 per cent, while GSPL’s was increased by 28-119 per cent. For instance, the tariff of the Dabhol-Bangalore pipeline, having a transmission capacity of 20mmscmd, was increased to Rs 37.8 per MMBtu, a gain of 54 per cent.

GAIL pipelines, for which tariffs have been raised, transport about 18 per cent of total transmission volumes. Higher tariff is applicable for the entire pipeline network of GSPL which has transmission capacity of 42mmscmd. The new tariff will be applicable from April 2018. This means revision in tariff could add nearly Rs 500 crore and Rs 325 crore, respectively, to the revenue of GAIL and GSPL for the current fiscal.

The revisions are higher than Street estimates. Analysts believe that the gas regulator has been liberal to arrive at tariff and acceded to several of the industry’s demands on the computation to opex, capex and depreciation.

Three main pipelines slated for tariff revision accounts for nearly 58 per cent of the total gas transmission of GAIL. Also, GAIL’s main pipelines, Hazira-Vijaipur-Jagishpur (old and new), are operating at less than normative rate 75 per cent considered by the regulator to fix tariffs. Hence, any benefit from an increase in volumes until 75 per cent utilisation will entirely be retained by GAIL.

The average tariff of GAIL could see a continuous rise in the next three years, while tariff of GSPL will have no upside trigger after the recent revision. The Street is pricing in average tariff for GAIL at Rs 1,428 and Rs 1,578 per mscm for FY19 and FY20, respectively, for the recent hike in tariff compared with Rs 1,294 in FY18. GSPL’s average tariff is expected to remain at Rs 1,357 per mscm for FY19 and FY20 each. GSPL’s average tariff stood at Rs 1,118 per mscm.

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