PSU stock GAIL surges almost 7% on positive tariff reforms by PNGRB | Stock Market News

Shares of state-run GAIL India saw a significant uptick of up to 6 percent on Monday, March 24, following new developments related to the Petroleum and Natural Gas Regulatory Board (PNGRB). The move comes as the PNGRB invited public comments on proposed amendments to natural gas tariff regulations, which are expected to positively impact gas transmission companies.

Tariff Reform Developments:

The PNGRB has received suggestions and comments from the industry committee concerning the tariff framework for natural gas. The proposed reforms aim to bring more flexibility to the tariff structures, particularly through updated cost pass-through mechanisms and volume-based assumptions. These changes would amend the Natural Gas Pipeline Tariff Regulations of 2008, and the board is inviting public comments on the proposed amendments until April 11, with finalization expected by June 2025.

If the changes are approved, they could lead to higher transmission tariffs for gas transmission players like GAIL and GSPL. Specifically, the tariff computation would be based on the contracted prices of either domestic gas or LNG. One significant change would see the zonal tariff structure reduced from three zones to two, which could benefit major gas transmission firms.

Potential Benefits for GAIL

The proposed changes could lead to a 20-30 percent increase in zone one tariffs, which would directly benefit companies like GAIL. Citi Research highlighted that these amendments are expected to significantly impact gas transmission companies, particularly GAIL, due to fuel cost changes and contractual LNG pricing, which can now be claimed. This has led to Citi initiating a 90-day ‘Positive Catalyst Watch’ on GAIL, raising their target prices for GAIL from ₹260 to ₹265.

Market Reactions and Broker Recommendations:

Brokerage firm Morgan Stanley believes that the proposed changes could accelerate India’s natural gas adoption, increasing its share in the energy mix from 6 percent to 15 percent. It expects GAIL, Oil India, and Reliance Industries to benefit the most from these developments, followed by GSPL.

Meanwhile, Motilal Oswal Financial Services (MOFSL) maintained a bullish stance on GAIL India, citing a strong transmission and marketing outlook. The brokerage forecasts a 7 percent compound annual growth rate (CAGR) in transmission and marketing volumes over FY24-27. MOFSL sees limited downside from the current levels, backed by steady transmission growth, a stable marketing outlook, and a diversified petrochemical portfolio.

The brokerage reiterated its ‘BUY’ rating on GAIL, with a sum-of-the-parts (SoTP)-based target price of ₹195. MOFSL highlighted that GAIL is positioned to be a key beneficiary of rising gas adoption in India. The company plans to expand its petrochemical capacity from the current 810 ktpa to approximately 2.7 mmtpa by FY27, driven by the PDH-PP and Gail Mangalore Petrochemicals Ltd projects. MOFSL believes this diversification will help reduce earnings volatility in the petrochemical segment.

Stock Price Trend

GAIL shares rallied as much as 6.7 percent to hit an intraday high of ₹186.56. The stock remains 24 percent below its 52-week high of ₹246.35, recorded in July 2024, while it recently touched a 52-week low of ₹150.60 earlier this month.

Over the past year, the PSU stock performance has been largely flat. However, it rebounded sharply in March, gaining over 17 percent and breaking a five-month losing streak. The stock had previously declined by 12 percent in February, 7.3 percent in January, 4 percent in December, 0.3 percent in November, and 17 percent in October.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.