GAIL’s share price has dropped by nearly 6.5 percent after the regulator announced its new tariff order.
The Petroleum and Natural Gas Regulatory Board has also recently approved a 12 percent hike in gas pipeline tariffs.
Normally, a tariff increase is also seen as positive news for a company, but this time the market has reacted in the opposite way. The reason is that the tariff revision was much smaller than what GAIL and investors were expecting.
Many analysts had also thereby predicted a higher hike because GAIL has rising operating costs and a large network that needs to be under continuous maintenance. The company had also requested a higher tariff, thus hoping it would improve revenue and also help in strengthening its future earnings.
But the approved rate was something that came below expectations. As a result, investors also felt the new tariff would not provide enough financial support to cover expenses in the coming years.
Another major concern is that the regulator has also postponed several cost recovery parts to the next tariff review.
This means GAIL will have to wait longer before it can recover some of its important costs, which are mostly related to expansion and operations.
The next review is expected only after a few years, which is also something that adds uncertainty to the company’s profit outlook.
Because of these factors, the market sentiment has also turned negative. Investors worry that GAIL may face pressure on margins and profitability until a more favourable tariff revision happens.
The lower than what was expected benefit, which is again combined with the delayed cost pass-through, triggered selling in the stock.
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