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Positive outlook owing to oil, spot LNG prices…

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 gas transmission network of 12426 km as of end of FY20.

* Gail also has a presence in CGD sector directly and via associate companies.

Q1FY22 Results: Results were marginally better than expected on profitability front.

* Revenue was up 43.8% YoY to | 17383.9 crore

* While gas transmission & LPG performance was better than expected, petchem performance was weaker than anticipated. Gas trading and LPG/LLH performance was in line with estimates

* Subsequently, EBITDA was at | 2411.3 crore, up 287.3% YoY. Reported PAT was at | 1529.9 crore, up 498.8% YoY.

What should investors do?

Gas trading outlook remains positive taking into account current LNG price trend. Transmission volume is also expected to pick up steadily with relaxation in lockdown and commissioning of industries/fertiliser plants.

* We upgrade our rating on the stock from HOLD to BUY

Target Price and Valuation: We value Gail at | 175/share based on SoTP method.

Key triggers for future price performance:

* Gas transmission volume are currently above pre-Covid level and expected to improve gradually

* Gas trading is expected to report healthy gains in the near term due to favourable spot LNG price trend

* LPG to report better profitability compared to FY21 on higher oil prices.

Alternate Stock Idea: Apart from Gail, in our oil & gas coverage we also like MGL.

* MGL is a beneficiary of India’s increasing gas demand and will continue to grow on account of steady volume growth, better pricing power and a favourable regulatory scenario

* BUY with a target price of | 1,340

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