India Natural Gas – 'Fuel for Growth'
India's primary energy basket is on the threshold of witnessing a quantum jump in contribution from natural gas. While the demand for gas has always been strong in the country, availability of transmission infrastructure and regulatory issues has restricted supply matching up to the demand growth. However, the medium term outlook has improved considerably with 1) increased availability of gas; both domestic and imports, 2) huge investments in gas pipeline infrastructure and 3) fast pace implementation of related reforms.
These developments, we believe, have created investment opportunities across the natural gas value chain. Pricing reforms are expected to be beneficial to both producers and LNG importers. While producers will gain from better realizations, LNG importers will benefit from correction in the pricing disparity (making LNG more affordable vis-à-vis domestic gas). Higher gas availability will lead to a jump in volumes for transmission companies. This coupled with stable tariffs would translate into better earnings visibility. City gas companies, which provide last mile connectivity for consumption by industries and vehicles, would also gain from increase in supplies and widening pipeline infrastructure of transmission companies.
We recommend investors to BUY GAIL, GSPL, Indraprastha Gas and Petronet LNG.
GAIL – BUY
CMP Rs451, Target Rs525, Upside 16.5%
± Doubling gas transmission capacity in two years
± Exposure to city gas projects and E&P fields value accretive
± Huge expansion planned for the petrochemical segment
± Subsidy an overhang, but relatively better placed
GSPL – BUY
CMP Rs97, Target Rs113, Upside 16.3%
± Expansion of transmission capacity to serve rising demand in Gujarat
± Three cross-country pipelines to add value
± Tariffs to remain flattish post PNGRB authorization
Indraprastha Gas – BUY
CMP Rs370, Target Rs409, Upside 10.5%
± Improving CNG economics and wider availability to drive demand in NCR region
± Under-penetration to propel demand for PNG
± Pricing power to enable margin sustenance
Petronet LNG – BUY
CMP Rs141, Target Rs162, Upside 14.9%
± Near term LNG demand to remain strong on lower production at KG-D6 field
± Expanding capacities at opportune time
± Regasification tariffs would continue to rise
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