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Going ahead, Gail will be a key beneficiary of rising gas demand in the country.(Photo: Pradeep Gaur/Mint)
Going ahead, Gail will be a key beneficiary of rising gas demand in the country.(Photo: Pradeep Gaur/Mint)

Share buyback, interim dividend plans boost investor sentiment for Gail

  • It is the operating performance that will see major improvement. A steady gas transmission tariff coupled with improved gas trading margin, better pet-chem and LPG margins in the wake of rising global prices - all will help boost operating performance

MUMBAI: Shares of Gail (India) Ltd rose over 5% on Tuesday to touch a fresh 52-week high, boosted by reports of share buyback and interim dividend which the board will consider in a meeting scheduled for 15 January.

These developments come amid much improved business prospects too. Rising crude oil prices bode well for earnings of upstream oil and gas companies such as Gail. Coming out of the lockdown, the company has witnessed a steady rebound in gas transmission and distribution volumes which are now back at pre-pandmeic levels, as per analysts.

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Better demand bodes well for its gas marketing segment as well. Spot gas prices have been rising and should improve the placement of higher-priced take-or-pay imported gas contracts.

The pet-chem segment that witnessed losses during the June quarter, seems to have better prospects now with rising demand and polymer prices. Its plant at Pata in Uttar Pradesh is running stable.

Assuming gas transmission volume at 110mmscmd (up 3% sequentially) and trading volume 6% higher sequentially at 94mmscmd, analysts at JM financials expect company’s Q3 sales to rise 3% quarter-on-quarter.

It is the operating performance that will see major improvement (62.2% sequentially). A steady gas transmission tariff coupled with improved gas trading margin, better pet-chem and LPG margins in the wake of rising global prices - all will help boost operating performance.

Going ahead, the company will be a key beneficiary of rising gas demand in the country, operating the longest pipeline infrastructure. The growth in consumption will be driven by industrial, automobile and household demand. The city gas and fertiliser sector will be the major growth drivers. Increasing gas pipeline infrastructure also bodes well for future volume growth. The company’s Kochi-Mangalore gas pipeline was inaugurated recently.

The positive stance of analysts for the stock is also based on seven new pipelines scheduled to start by FY23 which should push up transmission volumes by almost 35%. The commissioning of three fertiliser plants at Gorakhpur, Sindri, and Barauni along with demand from refineries (connected to Urjan-Ganga pipeline) should aid an increase in gas sales in the interim.

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