Gail shares hit 52-week high on UBS double upgrades to ‘buy’

UBS Securities has hiked its target price on the stock to Rs 150 from Rs 80, implying an upside of around 22 percent from today’s high.

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Shares of Gail (India) surged over 4 percent in early trade on July 31 to the 52-week high of Rs 122.70 after UBS Securities double-upgraded its rating on the shares to ‘buy’ from ‘sell’ and hiked its target price on the stock to Rs 150 from Rs 80. This implies an upside of around 22 percent from today’s high.

At 9:52am, the Gail stock was trading 2.2 percent higher at Rs 120.15 on the BSE.

UBS Securities thinks consensus is yet to fully appreciate the potential benefits of realised tariffs from tariff integration and the positive impact of India’s increasing gas demand and GAIL’s pipeline expansion.

A return of the utility nature of the business could lead to a re-rating of the stock, according to the brokerage firm. Gail is trading at a discount of 24 percent and 50 percent to its 10-year average Price to Book Value and Price to Earnings, and a deep discount in investment value, making its risk-reward ratio favourable.

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The company is slated to announce its June quarter earnings today.

Following two weaker quarters, the first quarter is expected to improve, primarily due to a hike in transmission tariff and reduction in APM/LNG prices. It is expected that the EBIT (earnings before interest and taxes) in the transmission segment will rise 36 percent on-year, driven by higher tariffs and volumes, according to Kotak Institutional Equities.

Additionally, the LPG/petchem segment is expected to benefit from lower gas prices. Moreover, the domestic brokerage firm predicts that the marketing segment will profit from increased oil index – Henry Hub spreads.

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