CLSA upgrade fires up Gail's shares on hopes of a potential tariff hike by June- Grow Mudra

CLSA upgrade fires up Gail's shares on hopes of a potential tariff hike by June

21 Apr , 2025 By : Debdeep Gupta

Shares of gas distribution major such as Gail India are higher by up to 4.5% in trade on April 21, riding on hopes of a tariff hike after regulator PNGRB floated a consultation paper on review of piped gas tariff.

The portal seeking comments from stakeholders on PNG rules was launched last week, inviting inputs from industry, and experts, based on which the regulatory framework will arrive at Model Revenue Sharing Contracts, and enhance legal clarity in the energy sector.

The stakeholders have time till May 1 to share their feedback, and Gail India has to revert to PNGRB by May 15. Gail had finally proposed a tariff hike of Rs 77.43/MMBtu, which is higher than the current rate.

Following the development, CLSA upgraded the stock to Outperform from Hold, raising target price to Rs 212, adding that it is expecting a 20-25% tariff hike in the June board meeting on PNGRB, raising its EPS estimates as well. CLSA said the commencement of the review process has raised hopes of a tariff hike, prompting it to raise FY26 and FY27 EPS forecast by 9% and 19% respectively.

It is reported that a decision could be arrived within the next three months, and a tariff hike could help boost Gail's earnings per share.

On April 18, the Centre also introduced steps to strengthen the domestic natural gas allocation framework, in order to support the rising demand for piped gas, as seen by the City Gas Distribution (CGD) players. Starting April 2025 (Q1FY26), the government will allocate natural gas to city gas distribution (CGD) players two quarters in advance, to supply Compressed Natural Gas (CNG) for vehicles and Piped Natural Gas (PNG) for homes.

GAIL and ONGC will estimate gas supply in advance, helping CGD companies plan better and ensure steady delivery, said a statement by the Ministry of Petroleum and Natural Gas (MoPNG).

Also, instead of auctioning New Well Gas, it will now be distributed quarterly, based on each CGD company’s needs, proportionate to their demand. Gail India has been entrusted with handling this allocation.

Despite a growing demand for CNG and PNG, the Centre said it will maintain a steady share of domestic gas for the CGD companies. With the recent fall in crude oil prices, natural gas is expected to become cheaper, making CNG for vehicles and PNG for homes more affordable.