GAIL (India) – III

I valued GAIL (India) back in June for the second time in the last 6 months and had a bullish outlook on the stock. I had invested in it in April when I found it grossly undervalued and the stock moved towards my intrinsic value in those 2 months. The stock had since then regressed and lost almost all of the 20% it gained from April to June. GAIL released their Q1 numbers this past week and I took another look at the valuation. I chose to keep the story same as I saw nothing in the last 2 months that altered my viewpoint about the company.

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 = 8.11%


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 ₹233.45, about 57% higher than the last traded price of ₹148.75.



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