GAIL (India) Ltd Shares Surge to 52-Week High Amid Strong Gas Demand

GAIL (India) Ltd Shares Surge to 52-Week High Amid Strong Gas Demand

VoM News Desk | December 1, 2023 | 04:32 PM IST | Breaking News | Follow on Google News

GAIL (India) Ltd Shares Surge to 52-Week High Amid Strong Gas Demand

GAIL (India) Ltd Shares Surge to 52-Week High Amid Strong Gas Demand

Shares of GAIL (India) Ltd experienced a noteworthy surge, climbing over 3% during intraday trading and reaching fresh 52-week highs. This uptick reflects robust investor confidence, buoyed by strong gas demand in India. Despite the volatility in international gas prices, there has been a notable softening from previous peaks. The decline in Liquified Natural Gas (LNG) prices, in particular, is viewed as a boon for domestic gas demand.

Rising Demand Across Sectors Boosting GAIL’s Prospects

GAIL, as the largest gas pipeline operator in the country, stands to benefit from increasing demand in various sectors. The demand is not just limited to compressed natural gas (CNG) and piped natural gas (PNG) but extends to the industrial sector as well. This broad-based demand is likely to bolster GAIL’s earnings, supported by higher transmission and distribution revenues. Additionally, the onset of new fertilizer capacities and the recovery of gas offtake in the power sector amidst soaring power demand are positive indicators for the company. The recovering oil-to-gas arbitrage demand in refining and other industries, owing to lower LNG prices, also contributes to this optimistic outlook.

Analysts’ View on GAIL’s Performance and Future Prospects

Analysts from Motilal Oswal Financial Services have indicated that moderate spot LNG prices will positively impact GAIL’s transmission business. The company’s impressive performance in the September quarter, with significant earnings growth, was driven by robust results in the gas transmission and trading segments. However, the petrochemical (petchem) segment remains a concern due to increasing capacities by Chinese refiners potentially pressuring petchem margins. Despite this, the overall earnings outlook for GAIL is positive, with rising gas demand expected to drive a strong earnings recovery. Sharekhan’s Abhijeet Bora anticipates a robust recovery in GAIL’s earnings across its business segments, supported by stabilizing global LNG supplies and a favorable price environment for its commodity businesses. The stock valuation remains attractive, trading at a steep discount compared to historical averages, and is expected to offer a healthy dividend yield of 4-5%. However, an increase in the domestic gas (APM Gas) allocation for GAIL is deemed essential. While GAIL is realizing higher tariffs than approved by PNGRB, the reduced allocation of APM gas has led to rising costs, as noted by analysts at Kotak Institutional Equities.

VoM News Desk

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