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TOTAL in Talks, Might Buy 30% of Adani Gas for $800M

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Per a Media release, TOTAL S.A. (TOT - Free Report) is currently in talks to acquire 30% interest in Adani Gas for more than $800 million (INR5,500 crores). If the deal goes through, TOTAL will be holding roughly equal interest in the company, along with its promoter.                    

Adani Gas is a gas distribution pipeline operator, and currently has pipeline network of more than 3,728 miles in India (6,000 kilometers). It provides services to around 350,000 retail customers.  

TOTAL’s Gain From This Deal

Per a recent report by BP p.l.c. (BP - Free Report) , India is going to be world's largest energy growth market by mid-2020s. Demand for coal, natural gas and renewable sources is rising to meet the energy needs of this developing nation.    

India’s natural gas pipeline space is poised for massive growth due to increasing demand, greater exploration efforts under the New Exploration Licensing Policy and the commissioning of liquefied natural gas (LNG) import terminals on the western coast.

Adani Gas currently supplies gas in five cities, and has the right to develop city gas distribution in another 38 geographies. Through the acquisition of interest in Adani Gas, TOTAL will be able to benefit from the increasing demand for growth in natural gas infrastructure in India. At present, demand for natural gas is higher than supply, and the demand for natural gas is rising in India due to its clean burning nature.

TOTAL’s Long-Term LNG Plan

Per the LNG outlook of Royal Dutch Shell PLC (RDS.A - Free Report) , global demand for the commodity will increase in the range of 4-5% within the 2015-2030 time period. Given strong long-term prospects of LNG, TOTAL has undertaken various initiatives to strengthen its position in the market. Acquisitions, tie-ups and the commencement of organic LNG projects are helping TOTAL to strengthen its position in the global market.

Acquisitions and startups will continue to boost TOTAL’s LNG portfolio, which is expected to touch 40 million tons per annum by 2020 and result in 10% market share in worldwide LNG business. TOTAL and Adani Group had entered into a partnership last October to develop regasification LNG terminals, and a joint venture to set up nearly 1,500 service stations.  

So, this new deal will give TOTAL the opportunity to take advantage of the growing natural gas sector of India through production of natural gas and supply the same to the end user via the expanding pipelines of Adani Gas.

Price Performance

Year to date, shares of the company have underperformed its industry.

Zacks Rank and A Key Pick

TOTAL currently has a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Chevron Corporation (CVX - Free Report) having a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Chevron delivered average positive earnings surprise of 2.33% in the last four quarters. Long-term earnings growth of the company is 6.25%. The Zacks Consensus Estimate has been upwardly revised by 20.8% to $7.94 in the past 60 days.

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