I valued Gail (India) 4 times over the last year with the latest being in November’21, I’ve always been bullish about the stock irrespective of it’s ambivalence over the last year. I still believe in the story and their recent growth and income metrics have outperformed my estimates. This is my latest valuation based on their Q3 numbers.
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 = 10.18%
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 ₹275.59, about 88% higher than the last traded price of ₹146.65.