GAIL, the state-owned enterprise belonging to the Government of India and principally a natural gas transmission and marketing company, has experienced a sharp rebound in demand after the corona virus lull.
The stock has not only risen almost 69% since the start of November, it is also trading near its 52-week highs seen last week. The valuations are attractive and fundamentals are improving, say analysts.
The sharp rally in oil price recently has improved earnings outlook for GAIL’s downstream segments – petchem and LPG-liquid hydrocarbons, said Abhijeet Bora, research analyst at Sharekhan. Key gas transmission and distribution segments have continued to see sharp recovery post lockdown with a strong rebound in gas demand. Higher gas prices are expected to drive the company’s gas trading revenues significantly.
GAIL owns the country's largest pipeline network, the cross-country 2300 km Hazira-Vijaipur-Jagdishpur pipeline with a capacity to handle 33.4 million cubic meters per day.. Today the company owns and operates more than 11000-km cross country natural gas pipelines in India, having presence in 22 states in the country. It also owns and operates more than 2000-km LPG pipelines in the country and is proud to operate one of the world's longest exclusive LPG pipelines in the country from Jamnagar in Gujarat to Loni in Uttar Pradesh.
Notably, the start of new pipelines in east India can drive sustainable growth for gas transmission/marketing volume.
Gail’s petrochemical plant is already running at full utilisation (106% in Q3FY21). Rebound in petchem realisations thereby further bodes well for overall growth in business and earnings.
“Our sensitivity analysis shows every $10 a barrel rise in crude impacts earnings per share on the positive by ₹4.9 or 22.4% of FY22 estimates, wherein contribution from petchem is 11.0%, LPG & liquid hydrocarbon is 5.0% and Natural Gas trading is 6.4%" say analysts at Elara Securities India (Private) Ltd.