I valued GAIL (India) back in April and arrived at an intrinsic valuation of ₹178.60. Since then, the stock has rallied tremendously and made 20% in little under two months. They released their Q4 numbers today and I took another look at the valuation keeping my story the same.
Numbers and Narratives
Gail (India) is a major player in the natural gas value chain of India. It is a monopoly garnering close to 70% share in the market. I expect it to have a growth rate of a mature company combined with the growth of natural gas market in India. I also expect it to keep greater than average margins given its competitive advantages.
The core numbers that I arrive at based on the story are
- Compounded revenue growth for next 5 years = 9% COVID Adjusted (8% industry average)
- EBIT margin in year 5 = 15% (~15% industry average)
- Initial cost of capital = 7.86%
I’ve used the above numbers along with the financial information to compute my DCF valuation for GAIL (India) as seen below.
As you can see, the valuation price came out to ₹201.79, about 25% higher than the last traded price of ₹162.40.