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

Jefferies in its latest note said that the Modi government reviving talks to include natural gas under GST should aid companies such as Gujarat Gas Ltd, GAIL (India) Ltd and Petronet LNG Ltd, adding that three out of four key states that could hold sway are under the ruling NDA. Such an inclusion could lower natural gas cost by $0.8-0.9 per mmBtu and aid faster adoption, helping GAIL's transmission and trading volumes in the medium term, the foreign brokerage said. GAIL's consolidated Ebitda could rise 2 per cent assuming it retains the benefit in the LPG segment, it added.

In the case of Gujarat Gas Ltd, it's competitiveness to propane is seen improving 6 per cent, aiding volumes or margin. Gujarat Gas would benefit in Morbi, Jefferies said noting that the 6 per cent VAT on natural gas sold in Morbi, if subsumed under GST, would improve Gujarat Gas' competitiveness to propane by Rs 2.5 per kg at current prices. If passed on, this would improve volumes; if retained, it would improve margins.

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

"VAT on CNG in Delhi/Mumbai/Gujarat is 0 per cent/3 per cent/5 per cent. We expect CGD players to pass on the benefit to consumers if CNG is subsumed under GST. This should increase the discount to petrol/diesel and marginally aid volume growth," Jefferies said.

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

"This VAT (Rs 0.8bn in FY24 calc) could be offset, but the company expects the regulator to cut tariff to pass on the benefit to the consumer. VAT paid on NG purchased from third parties in the trading business is offset against VAT charged on NG sales, resulting in no stranding of taxes paid. In the petrochemical business, no VAT is payable on LNG used as input, as it is treated as GAIL's own gas given the importing entity is GAIL. So, there is no stranding of taxes," it said.

Jefferies said, in the LPG business, VAT paid on natural gas as input is stranded today, as the final product is under GST. "Inclusion would benefit GAIL whose consolidated Ebitda can see 2 per cent upgrade, unless the government forces it to pass on the benefit to the OMCs," it said.