Transmission business crucial for Gail stock
₹43 per metric million British thermal unit (mmbtu) in FY23 to ₹58.6 mmbtu in FY24. Consequently, gas transmission business should make up for almost 50% of the company’s Ebitda in FY24. Ebitda is earnings before interest, tax, depreciation and amortization.
Motilal Oswal analysts expect gas transmission volume growth for Gail to continue at 8% CAGR during FY24-26. The growth estimate is higher than what is indicated by the report of International Energy Agency (IEA). According to IEA, India’s gas demand is forecast to increase at 6% per annum mainly led by fertilizer and power sector.
Fertilizer sector is the biggest consumer of natural gas with 28% share followed by transportation and power at 19% and 16%, respectively. While the demand for gas was never a problem in India, it was the supply side constraints hampering the company’s growth. For instance, there was de-allocation of domestic gas for compressor fuel that had an adverse impact of ₹800 crore on Gail’s operating profit from gas transmission in FY23.
The supply of gas should not be a problem with the country’s imports of liquefied natural gas (LNG) growing at 14% to 22,856 mscm in the first nine months of the FY24 (9MFY24). Along with higher quantum of imported gas, the other major benefit for Gail is the softening of gas prices globally because it makes the natural gas trading business more profitable. Against this backdrop, Gail’s trading segment Ebit (earnings before interest and tax) soared to ₹4,679 crore during the first nine months of FY24 from ₹2,591 crore in the comparable period a year ago.
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