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Home >Markets >Mark To Market >GAIL’s shares gain on transmission volume recovery, share buyback news

The tide has turned favourable for GAIL (India) Ltd following the economic recovery in the country, with a regular recovery in transmission volumes. The losses in the trading segment for the country’s largest transmitter and distributor of gas have also declined significantly led by rising crude prices and a regular increase in spot gas prices.

The stock is also gaining momentum. The Centre’s plans to include gas sales under the goods and services tax regime have further boosted Street sentiments. The news of the company’s share buyback starting soon lifted sentiments further. The stock gained almost 7% on Thursday adding to its gains of more than 58% since the start of November.

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The company’s transmission volumes grew 4% sequentially and normalized at similar levels seen in the year-ago quarter. With some increase in realizations, the segment revenues also improved 5% sequentially and 2% year-on-year. The prospects of gas transmission volumes remain strong led by rising natural gas demand in the country and increasing city gas distribution circles. A further increase in transmission volumes is likely with the recent completion of the Kochi-Mangalore pipeline and another pipeline in East India.

Analysts at HDFC Securities Ltd expect a 14% annual expansion in gas transmission volume over FY21-23 to 137 million metric standard cubic metres per day (mmscmd). This is expected to be driven by an increase in domestic gas production, increase in demand of regasified liquefied natural gas or RLNG, and completion of major pipelines in the eastern and southern part of India, they said. Rising gas consumption also bodes well for the company’s gas trading segments. The better gas usage in the country and the higher spot prices will mean that the company’s higher-priced take-or-pay international gas contracts will see better placements. The segment had seen losses increase in the first half with soft gas prices and lower consumption. However, the losses have reduced significantly during the December quarter and forward prospects remain strong.

“Given that the overhang of gas trading losses are now behind us (unless crude declines), the focus is back on volume growth for the transmission segment," said analysts at Credit Suisse. They have increased their FY21-22 earnings estimates by 40-83%, respectively.

Among the other segments are petchem, which had seen demand pressure during the first half and is now seeing a much better outlook. Petchem margins improved sequentially in the December quarter on the back of improved product prices, led by strong demand from downstream manufacturers. However, the street will be watchful on margins given rising supplies from China. At the 143.80 level, the stock is trading at 9.2 times FY22 earning estimates that is at a discount to long-term one-year forward P/E of 13x.

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