Buy Gail India Ltd For Target Rs. 180 - ICICI Direct
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Gas trading segment continues to drive earnings…
About the stock: Gail India is a gas utility company with various business segments such as gas transmission & trading, LPG, LLH and petrochemicals.
It operates a natural gas pipeline network of 13700 km as of end of FY21
Gail also has a presence in CGD sector directly and via associate companies
Q3FY22 Results: Gail’s results were better-than-expected on all fronts
Revenue was up 66.7% YoY to | 25769.8 crore (estimate:| 23186.5 crore
While LPG/LLH performance was weaker than anticipated, all other segments- gas transmission, gas trading and petchem reported better than expected profits
Subsequently, EBITDA was | 4228.1 crore, up 120.3% YoY (our estimate: | 3590.9 crore). Reported PAT was at | 3288 crore, up 121.1% YoY (our estimate: | 2500.8 crore)
What should investors do? Gas trading outlook remains positive in the near term taking into account current LNG price trend. Transmission volume is also expected to pick up steadily with commissioning of industries/fertiliser plants.
We maintain our BUY rating on the stock
Target Price and Valuation: We roll over valuations to FY24E and value Gail at | 180/share based on SoTP method
Key triggers for future price performance:
Gas transmission volume expected to report steady growth, going ahead
Gas trading is expected to report healthy gains in the near term due to favourable spot LNG price trend
LPG & petchem to report healthy profitability on account of higher realisation
Alternate Stock Idea: Apart from Gail, in our oil & gas coverage we also like GSPL.
It offers a play on India’s increasing gas demand. Growing CGD sector and domestic output will lead to stable volumes in the near term. It also derives value from market value of its listed subsidiary, Gujarat Gas
BUY with a target price of | 415
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