Natural gas company GAIL (India) Limited has significantly outperformed the market benchmark in the last one year with 45.5% returns compared to BSE Sensex with 16.9% returns

GAIL stock gave 45.5% in last one year but will good performance continue? Should you invest? Is it a good buy?

Natural gas company GAIL (India) Limited reported a mixed performance in the September 2024 quarter. EBITDA missed Reuters-Refinitiv estimates by 11.3%, whereas PAT exceeded estimates by 2.8%. On a year-onyear basis, while EBITDA registered 7% growth, PAT grew by 11%. Lower volumes in gas trading amid lower offtake from the power sector led to an EBITDA miss. Moreover, the sequential operating performance of all segments (except petrochemicals) during the quarter deteriorated, dragging the overall EBITDA down. On the other hand, higher other income and lower depreciation charges (on a sequential basis) helped PAT exceed estimates.

The performance is expected to improve, driven by higher domestic gas supply and strong demand from power and CGD segments. Management’s optimism is evident in its guidance of 10-12 mmscmd annual growth in gas transmission volumes over the next two years.

Gail contributes to more than 48% of the natural gas sold in India and operates 65% of the country’s total natural gas transmission pipelines, according to the company’s 2023-24 annual report. The government’s investments in the gas value chain to increase the natural gas share in primary energy provide a strong growth catalyst for the company. It is a beneficiary of the growing demand for natural gas with power, CGD and fertiliser sectors as the major consumers. Furthermore, incremental demand will come from refineries, chemical process industries, and iron and steel plants. Also, growing awareness of urban pollution are expected to create additional demand with the gradual adoption of gas among industrial and commercial customers.

Gail is expanding the scale of its core business areas to sustain growth momentum. It is venturing into newer opportunities in diversified sectors like gas sourcing and marketing, expansion of the LNG portfolio, development of the National Gas Grid (NGG), expansion of petrochemicals portfolio, investment in CGDs and specialty chemicals.

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In gas transmission, the company is expanding its gas pipeline infrastructure, and its key projects (Jagdishpur-Haldia-Bokaro-Dhamra pipeline, Mumbai-Nagpur-Jharsuguda and Kochi-Bangalore pipeline) are expected to be completed in 2025. Such expansion will support volumes and profitability in the future. Also, its petrochemical projects (at Usar and Pata plants) will provide incremental growth post-commissioning.

To strengthen its gas marketing segment, the company is exploring opportunities in LNG dispensation infrastructure through investment in a strategic LNG retail vertical. In the CGD segment, the management plans 80 new CNG stations and 1.2 lakh domestic-PNG connections over the next two years. The stock price has significantly outperformed the market benchmark in the last one year with 45.5% returns compared to BSE Sensex with 16.9% returns.

Selection methodology: We pick the stock that has shown the maximum increase in ‘consensus analyst rating’ during the past three months. The consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (1 for strong buy, 2 for buy, 3 for hold, 4 for sell, 5 for strong sell). An improvement in consensus analyst rating indicates that the analysts are getting bullish on the stock. Only stocks with more than five analysts covering them are considered. You can see similar consensus analyst rating changes during the past week in ETW 50 table.

This story originally appeared on: India Times - Author:Faqs of Insurances