GAIL share price rise more than 3% to scale 52 week high on improved earnings prospects led by strong gas demand

The international gas prices though volatile but have softened significantly from earlier highs. Liquified Natural Gas prices are significantly lower than the past two years, which is positive for gas demand in the country. . Not only compresses natural gas and piped natural gas demand is likely to help prospects, rising industrial demand is positive for GAIL that remains largest gas pipeline operator in the country and will see earnings improve supported by higher transmission and distribution revenues. 

The gas demand in the country is also being supported by new fertilizer capacities that have been gradually commissioning and have become fully operational now. Analysts highlight that after five years of decline, gas offtake by the power sector have recovered amidst strong power demand in the country. Also with lower LNG prices oil-to-gas arbitrage demand recovered in refining and other industries.

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Analysts at Motilal Oswal Financial Services said that moderate spot LNG prices are expected to have a positive effect GAIL’s transmission business.

GAIL’s performance during the September quarter already was robust with high earnings growth 70% sequentially led by super strong earnings from gas transmission and trading segments and narrowing down of loss in petchem segment.

Petchem segment outlook still remains weak as Chinese refiners have been increasing their petrochemical capacities which can keep maintaining pressure on petchem margins. However overall outlook for GAIL’s earning have improved with rising gas demand.

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Abhijeet Bora AVP at Sharekhan post Q2 results said that he expects GAIL to post a strong earnings recovery across its business segments supported by stabilising global LNG supplies and improving price environment for its commodity businesses. Valuation of stock has remained reasonable given a steep discount as compared to the historical average and expectation of a strong earnings recovery and a healthy dividend yield of 4-5%.

To be sure the domestic gas (APM Gas) allocation for GAIL needs to rise. GAIL is realizing much higher tariff (versus approved by PNGRB), and is a positive. But, with reduced allocation of APM gas, its costs are rising, said analysts at Kotak Institutional Equities.

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Updated: 01 Dec 2023, 02:18 PM IST