Shares of a Maharatna company notched 4.64 percent gains after its shares received a double upgrade from global brokerage UBS. Its shares reached a 52-week high of ₹ 122.95 apiece and were trading at ₹ 121.65 apiece at 01:21 PM on Monday.
GAIL (India), an integrated natural gas company is a Government of India undertaking. It owns over 11,500 km of natural gas pipelines, over 2300 km of LPG pipelines, six LPG gas-processing units and a petrochemicals facility.
Shares of the state-run company appreciated after UBS double-upgraded the stock to ‘Buy’ from ‘Sell’ while raising its target price to ₹ 150 from ₹ 80 earlier. This indicates an upside of 23.30 percent as compared to its current share price.
It said that the company’s shares are trading at a 50 percent discount to historical averages and that the consensus is yet to fully appreciate the upside to realised tariffs, the scope of India’s improving gas demand and GAIL’s pipeline expansion.
Moreover, it said that there is scope for further upward revision in tariffs in the coming months (as the regulator had considered lower gas prices in the previous tariff order), which is not built in its base case. The cost of gas used as fuel for transmission has materially declined in FY24 YTD, thereby improving margins.
UBS expects India’s gas demand to grow from 165mmscmd in FY23 to 200mmscmd by FY26, due to a steep ramp-up in domestic gas supply (primarily from Reliance Industries and ONGC); a ramp-up in utilisation of new (Dhamra) and upcoming (Chhara, Jafrabad and Jaigarh) LNG terminals; and lower LNG prices improving affordability.
With a market capitalization of ₹ 77,257 crores, GAIL (India) is a large-cap company. It has a low return on equity of 8.70 percent and an ideal debt-to-equity ratio of 0.27. Its shares were trading at a price-to-earnings ratio (P/E) of 13.84, which is at par with the industry P/E of 13.84, indicating that the stock might neither be overvalued nor undervalued.
Written by Simran Bafna
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