Why GAIL Share Price is Rising

In recent months, the gas transmission industry has experienced significant changes, largely influenced by the unpredictable fluctuations in crude oil prices.

If you remember, in the March 2023 quarter, oil transmission companies faced a dip in their net profit. This downturn was the after effect of soaring gas prices and disruptions in supply from Russia, impacting businesses across the board.

Fast forward to the present and the narrative has taken a positive turn.

In the past month, from the 11 listed gas distribution companies, 10 have yielded positive returns for investors.

Among them, the standout performer is the Gas Authority of India, commonly known as GAIL. The stock has rewarded investors with over 15% gains in just one week.

So, what's the driving force behind this sudden rally?

Let's find out.

#1 Strong Demand for Gas

One key factor contributing to the rise in GAIL's share price is the robust demand for gas. This demand surge is fuelled by lower prices of liquified natural gas (LNG) compared to the preceding two years.

The positive impact is twofold: the demand for both compressed natural gas (CNG) and piped natural gas (PNG) is on the rise.

This uptick in demand and lower prices is in the favour of top gas transmission companies.

Now, as GAIL is the largest gas pipeline operator in the country, it stands to benefit from this rising demand.

#2 Strong Quarterly Results

Following the release of GAIL's September 2023 quarter results, the company's stock has experienced a significant uptick.

The company delivered robust financial performance, reporting a 70.3% increase in its standalone net profit for the quarter under review. The net profit surged from Rs 14.1 billion (bn) in the previous quarter to Rs 24 bn.

This growth was primarily attributed to strong earnings in both the gas transmission and trading segments. Additionally, the company successfully narrowed down losses in the petrochemical (petchem) segment, further contributing to its overall positive financial performance.

On a consolidated basis, GAIL saw a 36% rise in net profit, reaching Rs 24.4 bn compared to Rs 18 bn in the quarter ending June 2023.

The company's earnings before interest, tax, depreciation, and amortisation (EBITDA) saw an increase of 43.5%, reaching Rs 35 bn from Rs 24 bn on a quarter-on-quarter basis.

Moreover, GAIL's EBITDA margin experienced an improvement of 350 basis points to 11% from 7.5% sequentially.

This strong financial performance is one of the major reasons why GAIL's share price is rising.

#3 Legal Proceedings against Gazprom

GAIL is taking legal action against a former unit of a Russian company called Gazprom for not delivering liquefied natural gas (LNG) as agreed.

So here's some backstory... back in 2012, GAIL India and Gazprom, the Russian energy giant, signed a deal for a steady supply of liquefied natural gas (LNG).

However, as the years passed, Gazprom's unit, formerly known as GMTS and now called Sefe, suddenly stopped delivering LNG to GAIL last year.

Hence, GAIL sued Sefe in the London Court of International Arbitration, seeking US$ 1.8 bn in damages for not delivering LNG.

If successful, the damages could provide financial relief to GAIL.

#4 Tie-up with BPCL

In November 2023, GAIL joined hands with Bharat Petroleum Corporation (BPCL) to supply propane for 15 years which is a key component for GAIL's upcoming petrochemical plant in Maharashtra.

This strategic partnership has an estimated value of Rs 630 bn and it also marks a pivotal step in GAIL's expansion plans.

What's Next?

GAIL has a strong focus on growth and expansion.

In August 2023, the company revealed plans to invest Rs 300 bn over the next three years. This investment aims at expanding the company's petrochemical capacity and securing LNG supplies globally.

The projected capex of Rs 300 bn over the next three years will primarily be directed towards crucial areas such as pipelines, ongoing petrochemical projects, and more.

With an existing operational network of 15,600 kilometres of pipelines and an additional 4,200 kilometres under construction, GAIL is set to complete about 20,000 kilometres of the national gas grid in the coming year.

Adding to its expansion plans, GAIL has secured the licence to lay, build, and operate the 160 km Gurdaspur-Jammu natural gas pipeline.

Furthermore, GAIL's strategic acquisition of JBF Petrochemicals Ltd, a private-sector chemical company, is a noteworthy development. This acquisition adds 1.25 million tonnes of petrochemical capacity to GAIL's portfolio. The expansion opens avenues for GAIL to introduce new chemical products, such as purified terephthalic acid (PTA), which will add to its product offerings.

How GAIL Share Price has Performed Recently

GAIL share price has gained over 15% in the last five days and more than 48% in the year 2023 so far.

The company touched its 52-week high of Rs 144 on 4 December 2023 and its 52-week low of Rs 90 on 12 December 2022.

Domestic institutional investors have increased their stake in GAIL by over 5% on a year on year (YoY) basis.

As of the September quarter in 2023, DII now accounts for 19.14% of the company's stake, a notable increase from the 13.93% stake they held during the same time last year.

On the other hand, Foreign Institutional Investors (FIIs) have decreased their stake by 6% YoY from 19.79% to 14.76%.

Check out GAIL's detailed shareholding pattern here.

About GAIL

GAIL (Gas Authority of India Limited) is a prominent Indian government-owned company specialising in the natural gas sector.

The company is a leader in this segment with around 75% of its revenues coming from natural gas marketing.

Additionally, GAIL is involved in various segments, including petrochemicals, natural gas transmission, LPG (liquefied petroleum gas), among others.

The company claims to be one of the top 10 global liquefied natural gas portfolio marketers.

Moreover, the company accounts for 67% of the piped natural gas connections in India.

For more details about the company, you can have a look at the GAIL fact sheet and quarterly results on our website.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...