Oil And Gas Sector Check - GAIL Our Top Bet; Indraprastha Gas Raised To 'Buy': Nirmal Bang
We also like Gujarat State Petronet and Petronet LNG as ‘Value Buys’, and Gujarat Gas as the dark horse.
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Nirmal Bang Report
We prefer natural gas stocks based on healthy growth outlook for Indian natural gas demand and the city gas distribution sector, - including compressed natural gas OEM sales and total cost of ownership analysis for CNG compared with electric vehicles~ favors CNG.
Indian Gas giant GAIL India Ltd. and the CGD stocks are set to gain from key catalysts discussed in this report.
Our top Buys: GAIL (Numero Uno), Mahanagar Gas Ltd. (emerging midcap) and Indraprastha Gas Ltd. (the old war horse)- raised from 'Accumulate' to 'Buy'. We also like Gujarat State Petronet Ltd. and Petronet LNG Ltd. as ‘Value Buys’, and Gujarat Gas Ltd. as the dark horse, which could regain traction, once the pressure on Morbi PNG volume/margins abate and there is visible growth from new CGD networks.
Higher supply and softer gas price to aid volume growth:
This is due to-
5.4%/9.3% compound annual growth rate in India’s overall natural gas and CGD segment demand over FY23-28E as per our estimates,
enhanced supply of domestic natural gas and liquefied natural gas at a cheaper price (down 69% YoY year-to-date FY24).
India’s overall gas demand is up 14% year-to-date FY24, driven by all segments. Gas used in the power segment has seen a revival (up 31.4% YTD) due to a steep rise in power demand.
Our 'Buy' call on IGL (and to a lesser extent MGL) is for one-two years and subject to review of the risk from-
slower than expected volumes,
lower pricing power/ margins (due to spike gas prices) and
lower than expected CNG vehicle addition due to higher sales and kms driven by EVs, which impacts IGL the most.
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