Gail India keeps brokerages upbeat on ratings; target price raised after Q2

Motilal values the core business at 10x FY25E adjusted EPS of Rs11.7, and when factoring in listed and unlisted investments worth Rs23, this adds to the overall value assessment.

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Shares of Gail India Ltd opened 1 percent higher on November 1 after several brokerages maintained their ‘buy’ rating and increased the target price after robust Q2 earnings.

The stock was trading at Rs 121 on the BSE, up 1 percent from its previous close at 9.10am. The stock has gained 25 percent so far this year.

Several brokerages have maintained their ratings on the stock and increased the target price after Q2 earnings. Motilal Oswal has maintained a ‘buy’ rating on the stock and increased its target price by 17 percent to Rs 140 a share. JM Financial increased its target price to Rs 140 from Rs 135 a share earlier and maintained a ‘buy’ rating on the stock. Citi has maintained the ‘buy’ rating and increased the target price to Rs 145.

Gail India’s consolidated net profit for Q2 surged 87 percent to Rs 2,442 crore from Rs 1,305 crore last year and 36 percent from the previous quarter’s Rs 1,793 crore on account of healthy transmission volumes. However, revenue from operations dropped to Rs 33,050 crore in Q2 from Rs 38,729 crore last year.

Natural gas transmission volume for the quarter was 120.31 MMSCMD, up from 116.33 MMSCMD in the previous quarter, while gas marketing volume was 96.96 MMSCMD, down from 98.84 MMSCMD in the prior quarter.

“We maintain ‘buy’ on reasonable valuation and steady growth visibility in the gas transmission business, coupled with higher tariff, on account of various policy tailwinds, given the government’s target to increase the share of gas in India’s energy mix to 15 percent by 2030 as against 7 percent currently,” JM Financial said in its latest note.

The petrochemical segment saw an EBIT loss for the fifth straight quarter, but it improved to Rs 160 crore in 2QFY24 from Rs 300 crore in 1QFY24, thanks to cost-cutting efforts. Motilal Oswal is concerned about the segment’s profitability, given the ongoing weak petrochemical pricing.

GAIL plans a capex of around Rs 9,000-10,000 crore in FY24, allocating Rs 4,000 crore for pipelines, Rs 3,200 crore for the petrochemical segment, Rs 700 crore for operations, Rs 200 crore for CGDs, and the rest for equity investments and other purposes. The remaining part of the Jagdishpur-Haldia pipeline should be completed by June 2024. Mechanical completion of the PP plant at PATA and the PDH-PP plant at Usar is expected by July 2024 and April 2025.

Motilal values the core business at 10x FY25 adjusted EPS of Rs11.7, and when factoring in listed and unlisted investments worth Rs23, this adds to the overall value assessment.

“We increase GAIL’s FY24 EBITDA estimate by 19% to incorporate the strong quarterly performance while lowering the FY25 estimate by 3% to account for delayed petrochemicals recovery. GAIL’s pipeline business, from which GAIL derives the most value, has turned around successfully over the last year and the marketing segment continues to witness a favorable commodity price environment,” said Antique Stock Broking in its latest note.