Public sector enterprise GAIL’s share price continued its positive momentum from Monday, gaining 2.7% in trade, clocking a high of Rs 122.35 apiece on the NSE, following its first fiscal quarter earnings as well as the double upgrade in rating from UBS.
UBS double upgrade
Brokerage UBS gave the PSU a ‘Buy’ rating, from its previous rating of ‘Sell’ and doubled the target price to Rs 150, from Rs 80 previously. “A return of the utility nature of the business could lead to a re-rating of the stock, in our view. GAIL is trading at 24%/50% discounts to its 10-year average P/BV and PE, and a deep discount in investment value, making its risk/reward favourable. We double upgrade to Buy and raise our price target from Rs 80 to Rs 150,” said UBS. Following the release of the report, GAIL share price soared almost 5%.
Should you buy, sell or hold?
ICICI Securities maintained its ‘Buy’ rating for the scrip, with a 20% bump in the target price to Rs 149/apiece. The new regulatory measures regarding pipeline tariffs, higher domestic supplies, moderation in spot LNG prices and some traction in sales prices for petchem and LPG should drive material improvement in earnings over FY24-25E, said the brokerage. However, it remains cautious on the petrochemical and LPG businesses for the near term.
GAIL (India)’s initiatives to reduce the losses from the petrochemical segment have contributed to YES Securities maintaining its current ‘Buy” rating. The brokerage revised its target price upwards to Rs 157 per equity share. Business for GAIL appears to be improving across segments, as domestic gas and LPG prices moderate. “We believe that the increase in volume augurs well for GAIL’s transmission business. Our SOTP based TP is a sum of a) stand-alone business valued at Rs 106/share on DCF basis , b) Listed investment valued at Rs 21/share and unlisted investments at Rs 27/share,” said YES Securities.
HDFC Securities also maintained its buy rating on the public sector undertaking. “Our BUY recommendation on GAIL with a target price of Rs 137 is based on (1) an increase in gas transmission volume to 127mmscmd by FY25 on the back of an increase in domestic gas production, (2) completion of major pipelines in eastern and southern India, and (3) expectation of improvement in earnings from the petchem segment. Q1FY24 reported EBITDA/PAT at INR 24/14 billion, came in below our estimates, impacted by weak earnings from the LPG and Liquid Hydro Carbon (LHC) segment. However, sharp pick-up in natural gas transmission volumes, higher tariff and higher gas marketing volumes supported earnings. Other income came in higher at Rs 2.7 billion, however was partially offset by higher interest cost of R 1.8 billion (+3.6x YoY, +95% QoQ),” said the brokerage.