GAIL (India): A Gas Giant Poised for Growth
GAIL (India), a major player in the Indian energy sector, is well-positioned for growth, making it an attractive investment opportunity. Sharekhan recommends a “BUY” rating on the stock with a target price of Rs 150. Here are the key insights from the latest analysis:
Key Highlights of GAIL (India):
- Gas Transmission Volume Growth: GAIL’s management has provided guidance for robust gas transmission volume growth, targeting 124 mmscmd/140 mmscmd by FY24/FY26. This significant increase is expected to bolster the company’s gas transmission EBITDA.
- Potential Tariff Hike: GAIL is likely to benefit from a potential further tariff hike in transmission tariffs following a recent 33% increase. This tariff adjustment could have a positive impact on earnings.
- LPG-LHC Recovery: The LPG (Liquefied Petroleum Gas) segment is expected to witness a strong recovery due to improving LPG prices, driven by a rise in propane prices. Additionally, a cap on APM (Administered Pricing Mechanism) gas prices will contribute to this recovery.
- Petchem Turnaround: GAIL’s petrochemical (petchem) segment is gradually turning around, with improved utilization rates and a recent uptick in HDPE (High-Density Polyethylene) prices. Soft LNG (Liquefied Natural Gas) prices also play a role in this recovery.
- US LNG Contracts: GAIL holds LNG contracts from the United States (5.8mtpa) at a significant discount to Asian spot LNG prices, which are currently around $14-15/mmBtu. This advantageous pricing structure is expected to contribute to strong margin-led earnings in the gas marketing business.
Outlook:
- Sharekhan reiterates its “Buy” rating on GAIL (India) with an increased price target of Rs. 150, rolled over to September 2025. The expectation of a 29% PAT (Profit After Tax) CAGR over FY24-26E, a healthy RoE (Return on Equity) of 16%, and an attractive valuation of 6.6x/5.9x FY25E/FY26E EV/EBITDA are the key factors behind this recommendation.
- Strong gas transmission volume and tariff outlook, favorable global LNG prices, and the gradual recovery in LPG and petchem prices are the driving forces behind the company’s earnings growth.
Summary:
GAIL (India) stands as a prominent player in the energy sector, with a bright outlook for the future. With strong growth prospects in gas transmission, LPG, petchem, and gas marketing, the company is set to deliver value to its investors. Sharekhan’s “BUY” rating reaffirms GAIL’s potential for substantial growth and an attractive return on investment.
Disclaimer: Any views and investment tips expressed by any author, investment experts or agencies here on MSTimes are their own and not those of mine or website. I advises users to consult/check with certified Financial experts / advisors before taking any investment decisions.
