Brokerages are encouraged by Gail India's ratings; the target price was increased following Q2

 Brokerages are encouraged by Gail India's ratings; the target price was increased following Q2

After accounting for listed and unlisted interests of Rs23, Motilal values the core company at 10x FY25E adjusted EPS of Rs11.7. This raises the evaluation of the entire value.

Following strong Q2 results, a number of brokerages maintained their "buy" recommendation on Gail India Ltd.'s shares and raised the target price, causing the stock to start 1% higher on November 1.

On the BSE, the stock was trading at Rs 121, up 1% from its previous close at 9.10 am. This year, the stock has increased by 25% already.

Following Q2 results, a number of brokerages have raised the target price while keeping their recommendations on the company unchanged. With regard to the stock, Motilal Oswal has maintained a "buy" rating and raised its target price by 17% to Rs 140 per share. JM Financial maintained its 'buy' recommendation on the company and raised its target price to Rs 140 from Rs 135 per share. Citi has raised the target price to Rs 145 while keeping its "buy" rating.

Due to strong transmission volumes, Gail India's consolidated net profit for the second quarter of FY increased by 87% to Rs 2,442 crore from Rs 1,305 crore in FY18 and 36% from Rs 1,793 crore in Q1. But from Rs 38,729 crore in Q1 of last year to Rs 33,050 crore in Q2 of this year, operating revenue fell.

The quarter's natural gas distribution volume was 120.31 MMSCMD, up compared with the previous quarter's 116.33 MMSCMD; the month's natural gas marketing quantity was 96.96 MMSCMD, down from the following quarter's 98.84 MMSCMD.

"We maintain 'buy' on acceptable valuation and steady growth the visibility in the electricity transmission business, connected with higher tariff, on account of many different policy tailwinds, given the government’s target of increasing the share of gas in India’s electricity mix to 15 percent by 2030 as against 7 percent currently," a recently released note from JM Financial stated.

For the sixth consecutive quarter, the petrochemical segment's EBIT loss was negative, but owing to cost-cutting measures, it improved to Rs 160 crore in 2QFY24 from Rs 300 crore in 1QFY24. Given the persistently low petrochemical price, Motilal Oswal is worried about the profitability of the business.

For FY24, GAIL has budgeted between Rs 9,000 and Rs 10,000 crore in capital expenditures. Of this amount, Rs 4,000 crore will go toward pipelines, Rs 3,200 crore to the petrochemical sector, Rs 700 crore to operations, Rs 200 crore to CGDs, and the remaining amount would go toward equity investments and other uses. By June 2024, the Jagdishpur-Haldia pipeline's remaining section ought to be finished. By July 2024 and April 2025, respectively, the mechanical completion of the PDH-PP plant at Usar and the PP plant at PATA is anticipated.

After accounting for listed and unlisted interests of Rs23, Motilal values the core company at 10x FY25 adjusted EPS of Rs11.7. This raises the evaluation of the entire value.

"We reduce the FY25 estimate by 3% to reflect the delayed petrochemicals recovery, and we raise GAIL's FY24 EBITDA estimate by 19% to reflect the good quarterly performance. In its most recent note, Antique Stock Broking said, "GAIL's pipeline business, which generates the majority of the company's value, has successfully recovered over the past year, and the marketing segment continues to enjoy a favorable commodity price environment."