Brokerage sees robust gas demand at 6.1% CAGR over next 8 years; maintains buy on GAIL, MGL, Gujarat Gas and Petronet

After a three-day back-to-back rally, oil prices declined on Wednesday as concerns about the global economy weighed while tight supply curbed losses. However, Nifty Oil and Gas rose nearly 5% in the past one week as on June 29.  

Amid rising crude and sanctions on Russia, brokerage house and market experts are divided on the sector.  

As per Antique Research, India's APM (Administered Pricing Mechanism) prices, building in global prices based on a formula are set to rise sharply and the freeze in volume allocation requiring LNG to fill in, is set to impact CGD margins slightly. 

However, CNG economics is resilient and is unlikely to impact demand growth, said the Antique report.  

"We forecast a robust 6.1% natural gas demand CAGR over the next 8 years, driven primarily by CGD and refineries. GAIL is the biggest beneficiary of the gas demand growth," it said.  

Apart from GAIL, it maintained a buy on MGL, Gujarat Gas and Petronet. However, the brokerage assigned 'Hold' on IGL.  

It suggested buy and hold for following targets:  

GAIL (India) | BUY | Target Price: Rs 180 

Petronet LNG | BUY | Target Price: Rs 275 

Gujarat Gas | BUY | Target Price: Rs 515 

Mahangar Gas | BUY | Target Price: Rs 1,118 

Indraprastha Gas | HOLD |Target Price: Rs 350  

Meanwhile, speaking on the sector, Vinod Nair, Head of Research at Geojit Financial Services, opined that upstream companies are currently benefited by higher spot prices of oil, leading to strong earnings, while refiners are benefited from higher GRMs.  

This trend is expected to continue in FY23, as OPEC will retain its current production levels, Nair said.  

Going ahead, if oil prices remain elevated, the oil marketing companies (OMCs) will be impacted by higher under-recoveries unless we have a calibrated hike in retail fuel prices, underlined the expert.  

"We remain positive on upstream companies in the short-term but over the medium to long term, we expect oil prices to correct as the supply constraints and geopolitical tensions relieve. Given higher volatility in earnings, overall, we have a neutral view on the sector," the expert added.