GAIL signs MoU with ONGC and Shell Energy India, stock falls 2.5%

According to CLSA, which has a target price of Rs 165 for the GAIL, the company’s Vijaipur site lies at the heart of its operations.

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GAIL stock fell almost 2.5 percent at open on the NSE on March 11, after GAIL along with Oil and Natural Gas Corporation (ONGC) and Shell Energy India (SEI) signed a tripartite Memorandum of Understanding (MoU) on March 7 to explore opportunities for import of ethane and other hydrocarbons. At 9:30 am, the stock was trading at Rs 185.35.

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According to a regulatory filing, they will also be examining the development of evacuation infrastructure at Shell Energy Terminal, Hazira. CLSA, which downgraded the stock to underperform in January on slow EPS growth, sees limited potential for rerating and anticipates subdued earnings per share growth, suggesting a cautious stance on GAIL‘s performance in the near term. In its latest report, the brokerage has further downgraded the stock to a sell call with a target price of Rs 165 for GAIL. Jefferies also has an underperform call for the stock with a target price of Rs 150.

Both brokerages highlighted GAIL’s commitment to energy transition through its green hydrogen pilot and “commissioning of SSLNG at Vijaipur site.” Analysts will keenly watch the company’s progress towards target of blending 20 percent green hydrogen in transmission volume by 2040, Jefferies said.

Also read: GAIL slashes CNG prices by Rs 2.5/kg

Nuvama retains a “hold” call on the stock with a target price of Rs 151. According to the brokerage, while GAIL is a diversified play on India’s gas consumption with growth driven by gas transmission, trading volume growth and high petchem capacity, “low utilisation of pipeline and cyclical nature of the petchem business remain key challenges”. But despite the challenges, initiatives towards becoming net zero by 2040 led by hydrogen blending, green H2 production, setting up CBG plant and LNG dispensing stations provide it an edge.

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Motilal Oswal has a “buy” call on the stock with a revised target price of Rs 215. For FY24-26E, the brokerage firm expects EBITDA to report a 14 percent CAGR, driven by rising natural gas transmission volumes, substantial improvement in the profitability of the petchem segment  and commencement of operations for 3,892km of gas transmission pipelines and 560ktpa of petchem capacity.

Over the past year, the stock has gained over 70 percent.

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