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GAIL (India) Ltd shares have given up some of their gains over concerns on the lockdown-related disruptions during Q1. The stock is, however, still up about 18% year-to-date.

Analysts maintain a positive outlook for the company as higher crude prices remain favourable. Natural gas prices, after remaining weak for long, are now firming up.

Notably, the company is the largest transporter of natural gas through its pipelines in India and remains the key beneficiary of rising gas demand. The higher gas prices could also boost the company’s gas trading revenues.

Favourable uptick
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Favourable uptick

Analysts at Jefferies India Pvt. Ltd said in a recent note: “Our FY22E Ebitda estimates could see a 15% upgrade on the back of higher natural gas trading and LPG profitability if crude sustains at $70."

The company had already seen the gas trading segment rebound to profits during the March quarter after reporting continued losses during the previous three quarters.

Analysts at Reliance Securities Ltd said GAIL’s US LNG non-contracted (back-to-back) volume would earn a higher trading margin and could see a continuation of margin uptick in the scenario of higher crude prices, higher spot LNG prices and stable US Henry Hub gas prices. However, analysts expect GAIL’s gas transmission volume to see some impact in Q1FY22 due to lower gas consumption by city gas distributors, power utilities and refineries. Gas trading segment may mitigate some of the impact.

“We expect GAIL to report a 4% jump in Ebitda sequentially during Q1, owing to profitability in the gas trading segment offsetting the flat transmission and lower volumes in petchem," said HDFC Securities Ltd analysts.

The broker pegs 9% CAGR expansion in gas transmission volume over FY21-23 on the back of an increase in domestic gas production. The increase in demand for regasified LNG and the completion of major pipelines in the eastern and southern parts of India are expected to provide further impetus to gas volumes.

News reports also suggest that the company plans to monetize a few of its pipeline assets through the infrastructure investment trust (InvIT) route. “The proposed InvIT could re-rate the valuation multiple of transmission business from 6.5x to 9x, lifting GAIL’s fair value by 20% ( 30/share), provided sizeable assets are transferred," said analysts at Jefferies India Pvt. Ltd.

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