1-2.5% Yield: Gujarat Gas Vs GAIL, Which High Dividend Paying Natural Gas Stock To Buy?

Gujarat Gas and GAIL (India) are two leading natural gas explorers on the Indian market. Both companies have announced their Q3 results, while one of them even declared dividends payout. Both have high dividend yields in the sector. Year-to-date, GAIL shares have zoomed by 11%, and that of Gujarat Gas has soared by 14% at least. Currently, natural gas prices are globally under pressure, and amidst such, which stock to buy Gujarat Gas or GAIL? Let's find out!

As per Religare Broking, natural gas prices have been under pressure on the back of adverse weather reports and news of last week's storage draw coming at 49 Bcf, smaller than already bearish expectations. But fresh forecasts for colder weather from Feb 21-25, imbues some positive tone, giving a ray of hope for the positional longs.

In its technical outlook, Religare added, "The markets did try to rally at the beginning of the week and even touched the 130 level. Under the given scenario it appears that we're going to observe the 120-125 level. But markets being heavily sold off, and surfacing near historically lower levels, selling will be a risky proposition. A short-term reversal is on the cards in case prices hold above the 130 mark during the early days."

Amidst such, which natural gas stocks to buy?

Gujarat Gas Share Price:

On BSE, Gujarat Gas share price ended at Rs 551.20 apiece, up by 1.06% with a market cap of Rs 37,944.06 crore. Although Gujarat Gas did not announce any dividend after Q3, it still holds a high dividend yield of 1.21%. In 2023, the company paid a dividend of up to 332.5% amounting to Rs 6.65 per share.

Centrum Broking:

Based on 9MFY24 financials, we have lowered our FY24E EBITDA estimate by 11.2% considering lower EBITDA/scm of Rs5.1/scm. Also, we have marginally lowered our FY25E/FY26E EBITDA estimates by 1.0%/1.2% considering EBITDA/ scm of Rs5.6/scm/ Rs5.7/scm. Despite some risk from EVs on CNG volumes, the stock is commanding high valuation. Based on our revised estimates, we downgrade the stock from Reduce to Sell with a DCF based revised TP of Rs423 (Rs407).

Elara Securities:

We upgrade GUJGA to Buyfrom Accumulate and raise TP to INR 745 (from INR 491), led by increase in FY24E-26E volume and EBITDA/scm estimates amid decline in LNG prices. Our DCF-TP factors in an 8.9% WACC (unchanged), a 16% FY23-26E volume CAGR (from 12%) and long-term EBITDA/scm at INR 6.0/scm (from INR 5.3/scm) from FY26E.

GAIL (India) Share Price:

GAIL's share price touched a new 52-week high of Rs 187.80 apiece, before correcting and ending at Rs 183.85 apiece, up by 0.8% on BSE with market cap of Rs 1,20,883.21 crore. On the current market price, GAIL has a dividend yield of 2.18%. The company recently turned ex-dividend for its upcoming interim dividend payout of Rs 5.50 per share or 55% ahead.

Elara Securities:

We up FY25E/26E EPS 7%/11% due to higher gas transmission and marketing volume. Thus, we raise TP to INR 191 (from INR 165). However, we revise GAIL to Accumulate from Buy as the stock has run-up 45% in the past three months, partly factoring in strong gas volume growth outlook, led by accelerating downstream CGD infrastructure and +150mn tonnes new LNG export capacity addition globally in the next four years. We value GAIL on SoTP, assuming 5.0x (unchanged) FY26E petrochemical EV/EBITDA, 5.0x (unchanged) FY26E LPG and LHC EV/EBITDA, 9.2x (unchanged) FY26E EV/EBITDA for transmission and 4.5x (from 4.0x) FY26E gas marketing EBITDA.

IIFL Securities:

We met with the management of GAIL at IIFL's 15th Enterprising Bharat - Global Investors' Conference in Mumbai. Key takeaways were: 1) Steady volume growth of 6-7% pa in the transmission business to continue, 2) Gas marketing business on a strong footing; aiming to earn at least Rs45bn pa of Ebitda in FY25/FY26ii, 3) Petchem segment to return to profitability in FY25ii on the back of favourable contracted LNG terms & gradual recovery in spreads. With a steady outlook on each of GAIL's businesses, we maintain our FY24-FY26ii estimates and see valuations as reasonable.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.