At the start of this week, the stock of India’s largest Natural Gas company surged by 6% following a ‘buy’ recommendation from the global research and broking firm Morgan Stanley, projecting a potential upside of 28%.
On Tuesday, at 9:40 a.m., on the National Stock Exchange, Gail (India) Ltd. shares were trading at ₹201, up 0.15 percent from the previous close.
GAIL (India) Ltd. is engaged in natural gas exploration and production, processing, transmission, distribution, marketing, and related services. The company has diversified into petrochemicals, telecoms, and liquid hydrocarbons.
The company’s shares have delivered returns of 62 percent in six months and 89 percent in the last 12 months.
The company’s revenue declined by 3.3 percent year on year, from ₹35,885 crore in Q3FY23 to ₹ 34,698 crore in Q3FY24. During the same time period, net profit increased by 702 percent, from ₹ 398 crore to ₹ 3,193 crore.
Based on a strong outlook on GAIL Ltd., a global research and broking firm, Morgan Stanley has given an overweight rating on the stock with a target price of ₹ 254, representing a 28 percent increase from Tuesday’s trading price of 201 per share.
GAIL is strategically positioned amidst India’s ambitious goal of achieving 2.7 times higher gas demand by 2030, making it the fastest-growing fossil fuel in the country, according to the brokerage’s analysis. Over the past decade, the GAIL has made substantial investments of $7 billion in pipeline infrastructure and $1 billion in chemicals, aligning with India’s evolving energy and infrastructure landscape.
Morgan Stanley’s assessment highlights the convergence of the global gas surplus with India’s potential $65 billion investment in gas infrastructure. Consequently, gas is projected to double its share in India’s primary energy mix, from 6% to 12% by 2030.
Moreover, the brokerage anticipates a doubling of EBITDA and a 13% earnings Compound Annual Growth Rate (CAGR) over the next three years. Additionally, Morgan Stanley identifies five key areas where GAIL could surpass expectations in the upcoming year, potentially driving a 20-25% increase in earnings estimates for
fiscal years 2025 to 2027.
The brokerage highlighted that GAIL took 40 years to achieve its first $15 billion in market capitalization creation while supplying 100 mmscmd of gas. However, they noted that the next 100 mmscmd could occur four times faster.
Additionally, compared to other global gas utilities, India has lower exposure to long-term oil-linked LNG contracts, standing at about 50% versus Japan’s 80%. The brokerage believes this positions both India and GAIL to benefit significantly from cheaper global LNG prices.
GAIL’s earnings leverage towards affordable gas and its role as a pipeline player in India’s evolving gas adoption narrative set it apart from many of its Asian counterparts. This advantage is particularly notable given India’s gas adoption story being in the early stages of development.
Recently,GAIL and Abu Dhabi National Oil Company (ADNOC), signed an MoU to explore opportunities, including the purchase of LNG by GAIL from ADNOC for a tenure ranging from short-term to medium and long-term.
In the recent fiscal year, the company reported a return on capital employed at 7.10 percent and a return on equity at 8.64 percent. Similarly, the Company reported a net profit margin of 2.80 percent.
In the most recent fiscal year, the company derived 76.5% of its revenue from the natural gas trading/marketing segment, with petrochemicals contributing 7.5%, natural gas transmission 7.5%, and LPG & other liquid hydrocarbon segments contributing 5%.
Furthermore, the company has a market share of over 70% in natural gas transmission within India and contributes to 55% of natural gas sales in the country.
Written by Omkar Chitnis
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