On Thursday, HSBC adjusted its financial outlook for Gail (India) Ltd. (GAIL:IN) (OTC: GAILF) stock, reducing the price target to INR270.00 from INR285.00, while reiterating a Buy rating on the stock. The revision reflects the analyst's expectations of strong gas transmission volume growth for the company, driven by increased demand and a robust supply forecast over the next four to five years.
The analyst's commentary highlighted the anticipation of a supply glut in the liquefied natural gas (LNG) market, as detailed in the report titled "One last winter before the crunch ends," dated May 13, 2024. This anticipated glut is expected to stabilize long-term gas supply prices, which could benefit price-sensitive markets like India by enabling higher imports of LNG.
India's LNG infrastructure is reportedly prepared to meet the rising demand, with key facilities such as Dhamra already operational, Dhabol expected to run at increased capacity after the monsoon season, and the Chhara terminal by HPCL projected to be commissioned by December 2024. Additionally, the expansion of India's pipeline capacity and recent regulatory changes in tariffs are likely to reduce transmission charges, particularly in remote areas, making it more economically feasible for these regions to adopt gas usage.
The analyst also foresees that the growth in gas transmission volumes will be propelled by various sectors. Newly commissioned city gas distribution networks, refineries, fertilizer plants, and the petrochemical sector are all expected to contribute to the increased demand for natural gas in India.
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