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Gujarat Gas, GAIL, Petronet LNG shares: 3cos to benefit if natural gas is included in GST

Jefferies, in his latest note, said the Modi government’s talks to bring natural gas under GST would revive companies like Gujarat Gas Ltd, GAIL (India) Ltd and Petronet LNG Ltd, adding that three of the four major states that could hold sway, under the prevailing NDA. Such inclusion could reduce natural gas costs by $0.8-0.9 per mmBtu and promote faster adoption, which would benefit GAIL’s transmission and trading volumes in the medium term, the foreign brokerage said. GAIL’s consolidated Ebitda could rise by 2 percent assuming its advantage in the LPG segment is maintained, it added.

In the case of Gujarat Gas Ltd, competitiveness compared to propane improves by 6 percent, which benefits volumes or margins. Gujarat Gas would benefit from this in Morbi, Jefferies said, noting that the 6 percent VAT on natural gas sold in Morbi, if brought under the GST, would improve Gujarat Gas’ competitiveness against propane by Rs 2.5 per kg at the current prices. If passed this would improve volumes; if retained, this would improve margins.

Petronet LNG could also benefit as improved natural gas competitiveness if GAIL passes on the $0.8-0.9 MMBtu benefit should drive volume growth, benefiting PLNG’s LNG volumes. It said such benefits would gradually increase over the medium term.

“VAT on CNG in Delhi/Mumbai/Gujarat is 0 percent/3 percent/5 percent. We expect CGD players to pass on the benefit to consumers if CNG is subject to GST. This should increase the discount on petrol/diesel. and marginally contribute to volume growth,” said Jefferies.

On GAIL, the foreign brokerage said the rate charged in its transmission business is already below GST. But VAT on natural gas used as fuel is failing.

“This VAT (Rs 0.8 billion in FY24 calculation) could be offset, but the company expects the regulator to reduce rates to pass on the benefit to consumers. The VAT paid on NG purchased from third parties in the trading activities are offset against the VAT charged on the sale of NG, so there is no stranding of taxes paid. In the petrochemical sector, no VAT is due on LNG used as input, as it is treated as GAIL’s own gas as the importing entity is GAIL,” it said.

Jefferies said that in the LPG sector, VAT paid on natural gas as input is failing today as the end product is subject to GST. “Inclusion would benefit GAIL, whose consolidated Ebitda could grow by 2 percent unless the government forces it to pass on the benefit to the OMCs,” the report said.

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