The Gail (India) Ltd stock was the top loser among the Nifty 50 stocks on Thursday, declining over 10%. Not without reason. A slew of brokerages have cut the company’s earnings per share (EPS) estimates by 3-4% for 2019-20 and 2020-21. These cuts were prompted mainly by the disappointment in tariff revision for its HVJ or Hazira-Vijaipur-Jagdishpur pipeline and HVJ upgradation of network pipelines.
The Street was factoring in higher tariff revision. Incorporating PNGRB’s tariff orders, Kotak Institutional Equities expects a 6% increase in Gail’s blended tariffs for gas transmission segment to ₹1.57 per standard cubic meter (scm) for 2019-20. This is lower than the broker’s earlier expectation of ₹1.62 per scm. Note that the measure stood at ₹1.47 per scm in 2018-19.
PNGRB or the Petroleum and Natural Gas Regulatory Board is the country's oil & gas regulator. Additionally, PNGRB has also revised tariffs for the Mumbai regional network.
“Contrary to wider expectations of increase in tariffs of HVJ system, thereby leading to substantial improvement in Gail's revenue (given HVJ system carries 60% of GAIL's volume), the tariff determined by PNGRB are a letdown," according to analysts from Antique Stock Broking Ltd in a report on 6 June. According to Antique, the Mumbai network carries just 3-4% of Gail's total volume.
Kotak cut its standalone EPS estimates to ₹30.7 (-3%) in FY2020 and ₹32.9 (-4%) in FY21 factoring in lower-than-assumed regulated tariffs for HVJ network, higher tariffs for Mumbai regional network and other minor changes.
After Thursday’s decline in share price, the Gail stock trades at around 10 times estimated earnings for the current financial year, based on Bloomberg estimates.