Natural Gas Sector; The stage is set, let the flow begin

Natural Gas Sector

The stage is set, let the flow begin

The natural gas transmission sector is gearing up for a long and sustained growth trajectory as impediments/roadblocks hampering its growth in the past are cleared. Increased natural gas supply from the KG D6 basin, higher supply of RLNG at reasonable rates, infrastructure in place to ensure seamless supply, emerging clarity on transmission tariff and strong demand from user industries (power, fertilizer, CGD etc) create a conducive environment for transmission and distribution players to clock steady growth.

We initiate coverage on the Natural Gas sector- specifically transmission and distribution companies with a long term bullish view. With most of the concerns on the sector being addressed, we expect a sharp improvement in the fundamentals of companies under our coverage. We expect our natural gas universe to register revenue, EBIDTA and PAT CAGR of 17.4%, 13.3% and 11.1% over FY10-FY12E respectively. We initiate coverage on GSPL, GGCL and Petronet LNG with a BUY rating and GAIL and IGL with an ACCUMULATE rating. While we prefer the business model of GAIL and IGL, the sharp run up in its prices offer limited scope for upsides from current levels.

Company	Rating	CMP (Rs)	Target (Rs)
GAIL	Accumulate	505	565
GSPL	Buy	116	151
Indraprastha Gas	Accumulate	338	382
Gujarat Gas	Buy	398	481
Petronet LNG	Buy	128	156