Multiyear Growth Cycle For Gas Firms Has Begun, Says Morgan Stanley

Morgan Stanley has turned bullish on Indian gas companies as prices remain benign and the government pushes for cleaner fuels and looks to cut dependence on oil.

Gas volumes are expected to increase by 50 percent over the next five years, the brokerage said.

India is keen on increasing the share of gas in overall energy consumption to reduce emissions under the Paris agreement and cut oil imports by 10 percent by 2020, the international brokerage house said in a report. Volumes could rise on the back of demand from industries, fertilisers sector, city gas distribution, refinery and petro-chemical plants, the report added.

Gujarat Gas

• Expect net profit to grow at compounded annual growth rate (CAGR) of 50 percent over FY17-20.
• Expect high volume growth beyond 2020, as it starts operations in 11 new areas of distribution.
• Expect volumes to grow at 17 percent CAGR over FY17-20.
• Gujarat Gas is currently trading at lower price-to-earnings when compared to peers.

Petronet LNG

• Earnings to grow on the back of Dahej expansion, gradual ramp-up at Kochi and tariff escalations.
• Expect net profit to grow at CAGR of 20 percent over FY17-20.
• Newly commissioned LNG capacities are well timed to capitalise on increasing gas demand.
• Expect dividend payout to increase to 50 percent from current 20 percent.

GAIL (India)

• Expect gas transmission division to benefit from higher gas volumes and tariff revisions.
• LPG and chemical business to benefit from a ramp-up of new capacity.
• Expect net profit to grow at CAGR of 16% over FY17-20.
• Dominant position in gas business gives GAIL the leverage to access multiple new city gas centres and significant LNG supply contracts.
• Key triggers:- Higher volumes, regulatory upside from tariffs, lower LPG prices to benefit petrochemicals business.

Indraprastha Gas

• Delhi government to add 2,000 buses in the next two years on CNG leading to increase in volume.
• Steady volume growth from the existing areas to drive 12 percent volume CAGR over FY17–20.
• Expect net profit to grow at CAGR of 18 percent over FY17-20.
• Government is looking to awards new city gas licences. To add more than 200 cities, over the next three years. IGL, with its strong balance sheet, is well placed to capture this growth opportunities.

Gujarat State Petronet

• Hike to factor in the upside in Gujarat Gas; GSPL owns 26 percent stake in Gujarat Gas.
• Expect net profit to grow at CAGR of 15 percent over FY17-20.