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Last Updated : Jan 15, 2020 02:28 PM IST | Source: Moneycontrol.com

Credit Suisse bullish on these 3 gas stocks as demand may double over the next decade

The research house also initiated coverage with a buy call on Petronet LNG (and a target of Rs 350, a potential upside of 26 percent) and GAIL (target of Rs 171, up 31.5 percent).

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Shares of Mahanagar Gas rallied 6 percent intraday on January 15 after global brokerage Credit Suisse initiated coverage with a buy call on the stock and target of Rs 1,280 (implying 26 percent potential upside from current levels) citing likely strong gas demand in next 10 years.

"The company's margins could expand with lower input prices next year," said the brokerage.

The research house also initiated coverage with a buy call on Petronet LNG (and a target of Rs 350, a potential upside of 26 percent) and GAIL (target of Rs 171, up 31.5 percent).

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In case of GAIL, the transmission and marketing divisions benefit from high volume growth while in case of Petronet, strong LNG imports should ensure full utilisation of Dahej and higher uitilisation of Kochi terminal, Credit Suisse said.

But among others, the global research firm initiated coverage with a neutral rating on Indraprastha Gas (target Rs 410) and Gujarat Gas (target Rs 240) as they are already factoring FY20-24 strong volume CAGR of

10 percent and 8 percent, respectively.

Indraprastha Gas shares rallied more than 6 percent intraday to hit a fresh 52-week high of Rs 451, but others Petronet LNG, GAIL and Gujarat Gas were moderately lower at the time of publishing this copy.

Credit Suisse feels the India gas demand is expected to double over next ten years.

"The drivers are: (1) higher demand from the fertiliser sector (9 percent CAGR) with revival of several inactive fertiliser plants (enabled by expanded gas pipeline network) and government’s drive to convert naphtha-based plants to gas-based; (2) significant expansion in city gas network (over 29 percent CAGR over next five years) and (3) low spot LNG prices to boost industrial demand (global LNG market to stay oversupplied at least till CY21)," the brokerage said.

The research firm further said the bull case of 10 percent CAGR could be driven by: (1) surge in industrial demand with a stricter control on polluting units by the National Green Tribunal (already ordered Central Pollution Control Board for taking action in more than 69 areas) and (2) higher utilisation of gas-based power plants if LNG prices slide further.

Credit Suisse expects LNG imports to increase at a 10 percent CAGR over FY19-22, which could be even higher if swing factors play out as the ramp-up of domestic gas supply is back-ended (full evacuation network of ONGC’s KG 98/2 block only available in FY22).

LNG import infrastructure is already ready, with expanded capacity at Dahej and two new terminals coming up on the western coast (Mundra and Jaigarh), it said.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Jan 15, 2020 02:26 pm
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