GAIL (India's) integrated natural gas pipeline tariff will be hiked to Rs 58.61 per metric million British thermal units (MMBtu) starting April 1, as per a Petroleum and Natural Gas Regulatory Board (PNGRB) notification. GAIL's director of finance Rakesh Kumar Jain said the tariff increase will aid overall EBITDA by Rs 1,600 crore at current volumes but the firm will appeal to PNGRB to revise it as the hike considers lower gas costs and expenses.

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“It’s a reformative step and it will enable the increase of the share of gas in the energy basket…Most of the reductions PNGRB has done on assumption. Certainly, we are examining the order and we will go back to PNGRB for the tariff order which they issued yesterday,” he told CNBC-TV18.

Gas marketing revenue in FY24 is seen at Rs 3,500 crore, Jain said, adding, “PNGRB has notified tariff for nine of our physically interconnected pipelines. The weighted average tariff for those pipelines currently is around Rs 46 per MMBtu, which has been increased to Rs 58.61, which means there is an increase of 26 percent for these pipelines and this increase will result in an increase in revenue and the EBITDA by almost Rs 1,600 crore per annum based on the actual volume flow.”

Brokerages see the 45 percent higher new tariff, along with lower spot LNG prices as a positive for the company but quarterly earnings are likely to remain volatile, they said.

JPMorgan expects the public sector undertaking’s earnings to improve sharply from one of the weakest quarters seen in December 2022. It has increased its FY24-25 EPS estimate for GAIL by 11-16 percent.

Citi said the hike should put to rest scepticism around regulatory upsides and lead to volume recovery and steady growth in gas transmission. It sees upsides from lower spot LNG and APM prices in petchem and LPG and expects volatility in gas trading to reduce.

Jefferies, meanwhile, sees a 17 percent jump in EBITDA in FY24 with part of the benefit offset by higher operating costs. It added that the management’s buoyant guidance for tax volume and trading profits in FY24 are contingent. The brokerage believes LPG profitability will be impacted by sharp fall in international prices.

Morgan Stanley, on the other hand, said the hike implies Rs 2,000 crore in revenue and 14 percent and 12 percent upside to Street in FY24 and FY25 EPS estimates, respectively. The analyst sees further triggers from chemical price increases and cheaper gas-supporting margins.

Motilal Oswal Financial Services expects lower LNG prices and a ramp up in petchem to improve earnings.

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