GAIL (India) Ltd share price with gains of more than 4% hit a 52-week high on Monday. The 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 are likely to benefit GAIL the most, being the largest gas pipeline operator in India. Not only the outlook for gas transmission and trading business remains strong, rising gas production in the 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.
The gas demand in the country is also to be aided by commissioning of fertiliser 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 a sharp surge amid the war between Russia and Ukraine, though volatile, 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 LNG prices are further positive for gas demand.
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 the 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 turnaround in petrochemicals, analysts at MOFSL are expecting 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.
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