The Petroleum and Natural Gas Regulatory Board's proposal for a uniform tariff for natural gas is not only expected to boost GAIL (India) Ltd.'s earnings but is also likely to make piped cooking gas cheaper for most consumers.
Shares of India's largest gas distributors rose as much as 8.3 percent, the most in over two months, to Rs 429 apiece. The stock was the best performer in the NSE 50 Index in early trades. Volumes stood at 22.1 times the 30-day average.
The Board proposed a tariff of Rs 2 per standard cubic metres, 60 percent higher compared to the average tariff earned by state-run GAIL in fiscal 2017. It has a network of more than 10,000 kilometres of natural gas pipeline in India.
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The unified tariff will bring parity to the cost of gas across networks, ensuring a return on capital employed of 12 percent for the pipeline transmission companies.
Gujarat State Petronet Ltd., which owns and operates two inter-connected gas networks in Gujarat, will also benefit from the proposed tariffs.
A uniform tariff means users far from the source of supply will not have to pay higher. It will benefit the end consumers, Gajendra Singh, director-marketing, GAIL (India), told BloombergQuint in a phone interview.
We expect the final decision should come out fast as new plants and investments are coming up. We expect some reasonable tariff to come in because there is a huge demand across the nation.Gajendra Singh, Director-Marketing, GAIL (India).
Brokerage Views
- BoB Capital expects gas volume to be in the range of 108 to 117 million metric standard cubic metres a day over till March 2020, and the new tariff could boost GAIL's earnings per share by as much as 48 percent.
- Equiris Capital expects transmission revenues to increase by 46 percent for the current and next financial year.
- Citi Research says that the new tariff will be a game changer for GAIL (India). Had the new rate of Rs 2/scm have been applicable in the year to March, the company's EBITDA and net profit would have been higher by 23 percent and 30 percent, respectively.
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