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%
Valuation
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.