Moneycontrol
Dec 07, 2017 03:23 PM IST | Source: Moneycontrol.com

Gas stocks GAIL, IGL, Mahanagar, Petronet rally 3-7% on value buying

Value buying on likely addition of gas sector in goods and services tax (GST), expected rise in volume through city gas distribution and implementation of BS-VI emission norms could be main reasons for rally in these stocks.

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Gas stocks were on fire Wednesday as the state-run GAIL surged 7 percent to hit a fresh record high of Rs 489.30 per share while Mahanagar Gas, Indraprastha Gas and Petronet LNG rallied 3-5 percent.

Value buying on likely addition of gas sector in goods and services tax (GST), expected rise in volume through city gas distribution and implementation of BS-VI emission norms could be main reasons for rally in these stocks.

"We see gas sector stocks as key beneficiaries on possible inclusion of gas under GST in the near term, which will enhance competitiveness of LNG against alternate fuels," Kotak said in its report dated December 1, 2017.

The research house recommended playing it through GAIL (Buy), which will also benefit from removal of stranded taxes for petchem/LPG segment and Petronet LNG (Add) from improved visibility on LNG demand.

The Ministry of Petroleum and Natural Gas has recommended the inclusion of gas under GST ambit to Ministry of Finance.

GAIL currently pays an irrecoverable VAT of 15 percent on APM/PMT gas and RasGas/Gorgon LNG supplied by upstream companies and Petronet LNG, majority of which is being purchased in the state of Gujarat.

"Computation suggests GAIL's FY2019 EPS will increase by Rs 2-3 (+6-9 percent) assuming 75 percent of raw material cost for LPG/petchem production pertains to gas purchased in Gujarat," Kotak had said.

Kotak expects City gas distribution companies (Mahanagar Gas, Indraprastha Gas) to also benefit from inclusion of gas in 5 percent GST slab, as it will enhance the relative economics of LNG-based industrial and commercial gas versus alternate fuels such as fuel oil and pet coke, both already in GST at 14 percent. However, current valuations desire more, a lot more, so the research house retained sell rating on these stocks.

At 14:42 hours IST, the stock price of GAIL India was quoting at Rs 484.90, up 6.26 percent, Mahanagar Gas was up 2.86 percent at Rs 1,136.30, Indraprastha Gas up 1.76 percent at Rs 329.55 and Petronet LNG up 3.81 percent at Rs 253.50 on the BSE.
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