Gail earnings prospects bright, but petchem biz a challenge
₹3500 crore, after the business clocked earnings of ₹2700 crore in the half-year ending September (H1FY24). This measure is expected to reach ₹4,000 crore in FY25. In the gas transmission business, Gail expects volumes to be at 120 million standard cubic meters per day (mmscmd) in FY24 and rise to about 132 mmscmd for FY25.
In FY23, transmission volume stood at 107 mmscmd. The drop in international gas prices in tandem with strong demand and anticipated higher tariffs is likely to benefit the company. Further, the anticipated softness in global LNG prices due to the forthcoming commissioning of substantial capacities in the US and Qatar is expected to drive demand over the years.
Notably, the rising demand for LNG helps boost Gail’s transmission business. Plus, the increasing availability of domestic gas from producers such as Reliance Industries Ltd, Oil & Natural Gas Corp. Ltd, and Oil India Ltd, also helps.
Against this backdrop, Motilal Oswal Financial Services anticipates that transmission Ebitda would account for 46% of total Ebitda in FY26, up from 40% in FY23. “This should improve the earnings stability," said the Motilal report dated 28 December. To expand the pipeline network, Gail has a capex plan of ₹3,600 crores for FY24.
Total capex plan for FY24 stands at about ₹10,500 crore. Over the medium-term, Motilal Oswal’s analysts estimate Gail to report a free cash flow of ₹4,560 crore in FY26 (versus negative ₹4,530 crore in FY23) despite capex mounting 64% over FY24-26E (versus the average for FY19-23). Meanwhile, Gail is actively assessing the monetization of its city gas distribution (CGD) assets.
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