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A reduction in the spot LNG price, along with strong demand, and a sharp increase in domestic gas supply, should drive gas utilities' earnings growth and valuations, HDFC Securities said.

"We expect the fall in spot LNG price by 80 per cent from the recent peak in Feb 2021 to USD 6.6 per mmbtu for May delivery to boost demand growth.

"We expect 12 per cent CAGR in Indian natural gas demand over FY21-23E to drive earnings growth of up to 25 per cent CAGR (FY21-FY23E)," the report said.

Further, it said that this should lead to stock price upside potential of over 21-27 per cent "for our top picks GAIL, GSPL, and GGL".

Commissioning of long-distance gas pipelines and rising penetration of the city gas network should drive 10 per cent CAGR in Indian gas demand to 208 mmscmd over FY21-24E after a decline of 1 per cent CAGR over the past eight years (FY12-20), even in a volatile gas price environment, the report said.

"Recently, when spot LNG price almost doubled to USD 8.3 per mmbtu over Oct-Jan, 2021 LNG demand contracted by only 12 per cent to 91 mmscmd."

"The lower share of spot LNG in imports further reduces the adverse impact of volatile spot prices on demand."

As per the report, spot LNG price has fallen 80 per cent from February 2021 highs to $6.6 per mmbtu for May delivery and should trend down further heading into summer.

"LNG charter rates too have declined substantially over the past two months. Low LNG price, at less than 10 per cent of oil price, should ensure strong domestic demand from industrial sectors."

"We estimate an incremental demand of 4.8mmtpa over FY21-FY23E, a CAGR of 9 per cent."

According to report, after falling by 36 per cent MoM to 61 mmscmd in April 2020, low prices and recovery in industrial activity drove up LNG consumption in India by 70 per cent to 103 mmscmd in Oct 2020.

"A rise in LNG price curtailed the monthly LNG consumption over Oct 2020-Jan 2021 by 12 per cent to 91 mmscmd. As LNG price heads down over the next few quarters, we expect LNG consumption to rise again from the 4QFY21 levels."

"We expect domestic gas price to have bottomed in 2HFY21 at USD 1.79 per mmbtu and increase gradually to USD 2.6 per mmbtu in 2HFY22 with the increase in global gas prices."