GAIL share price rises more than 4%, scales 52 week highs on improved earnings prospects amidst strong gas demand
GAIL (India) Ltd share prices with gains of more than 4% also scaled 52-week highs on Monday. GAIL Stock has gained more than 50% in the last six months on an improved earnings outlook. The decline in international gas prices and strong gas demand in the country is likely to benefit GAIL the most, being the largest gas pipeline operator in the country. Not only the outlook for Gas transmission and trading business remains strong, rising gas production in country will also support GAIL’s growth.
“We introduce our FY26 estimates and project that transmission volumes would grow to 140mmscmd, clocking a 9% CAGR during FY23-26” said analysts at Motilal Oswal Financial Services . The volume growth would be fueled by an increase in domestic gas output from Reliance Industries, ONGC, and Oil India, they said.
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The gas demand in the country is also to be aided by commissioning of fertilizer capacities.
Besides Gas consumption in India is also being aided by a notable rise in LNG regasification capacity over the next few years, as five new LNG terminals ramp up operations. The LNG Prices that had seen sharp surge post start of war between Russia and Ukraine. The international gas prices, though volatile but have softened significantly from highs. Analysts now expect a sizeable new liquefaction capacity coming online during CY24- 26, especially in the US and Qatar, which should keep spot LNG prices under check. Lower Liquified Natural Gas prices are further positive for gas demand in the country.
Analysts at Motilal Oswal anticipate that transmission Ebitda (earnings before interest tax depreciation and amortisation) would account for 46% of total EBITDA in FY26, up from 40% in FY23. This should improve the earnings stability for GAIL
The petrochemical business has seen pressure for the industry as a whole due to higher supplies amidst rising capacities. However lower capacity additions now and rising demand are likely to aid gradual improvement in Petchem segment profitability.
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Besides the rising volumes analysts are expecting Tariff revisions to help GAIL’s earnings growth.
Fueled by rising transmission volumes and a turnarou nd in petrochemicals, analysts at MOFSL are forecasting GAIL’s ROE (Return on Equity) to improve to 15% by FY26 from a low of 9.5% in FY23. A combination of the upcoming gas price-related tariff hikes, an EBITDA CAGR of 32% over FY23-26, and onset of new projects can drive a re-rating said analysts at MOFSL.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions
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Published: 01 Jan 2024, 11:14 AM IST
