Sharekhan Recommends These 2 Stocks To Buy For Sound Returns

Broking firm Sharekhan has suggested investors to buy the stocks of Gujarat Gas and GAIL India. The brokerage sees significant upside on both the stocks from the current levels. Here are some of the reasons the brokerage is recommending to buy the stocks.

GAIL India

Current market price	Rs 142.70
Target price	Rs 196

Sharekhan has increased its FY2022-FY2023 earnings on GAIL estimates to factor in improved volume outlook for petrochemicals segment (as the management guided to achieve 100% utilisation in FY2022) and higher profitability for LPG-LHC business.

The recent sharp correction in GAIL's stock from its 52-week high of Rs 170 provides a good entry opportunity for long term investors as earnings outlook (expect a 34% net profits compounded annual growth rate over FY21-FY23E) remains strong given sustained high-crude linked commodity prices and a potential sharp improvement in RoE to 16.4% in FY2023E.

"GAIL's valuation of 5.7 times its FY2023E EV/EBITDA is attractive, and we expect the company to be the key beneficiary of the government's aim to increase the share of gas in India's energy mix, as the same provides sustainable volume growth opportunity for its gas pipeline and trading business. Additionally, potential value unlocking from monetisation of gas pipeline assets would act as a key re-rating catalyst. Hence, we maintain our Buy rating on GAIL with an unchanged target price of Rs 196," the brokerage has said.

Gujarat Gas: Buy with a price target of Rs 890

Current market price	Rs 770
Target price	Rs 890

According to Sharekhan robust margin performance was driven by full benefit of the Rs. 9/scm price hikes taken in Jan-Feb, and lower gas cost on account of decline in spot LNG price and higher use of domestic gas. Industrial PNG volume declined by 19% q-o-q to 7.8 mmscmd as demand from Morbi customers fell by 23% q-o-q to 5.6 mmscmd.

"Management maintained its 10% p.a. volume growth guidance for next 3-4 years and FY22 margin guidance of Rs. 5.5-6/scm. Volumes recovered to 12 mmscmd but EBITDA margin likely to fall to Rs. 4-4.5/scm on recent surge in spot LNG price.

We maintain a Buy on the stock of Gujarat Gas with a revised target of Rs. 890. Gujarat Gas industry leading volume/earnings growth outlook (expect 24% PAT CAGR over FY21-FY24E), high RoE of 30% and robust FCF justified premium valuation," the brokerage has said.

Risks for Gujarat Gas stock

Sharekhan also sees the lower-than-expected gas sales volume in case of COVID-19 led economic slowdown as one of the risks. "A delay in development of new GAs, a sharp rise in LNG prices and adverse regulatory changes could impact outlook and valuations," the brokerage has said.

	2021-22	2022-23
Revenue	Rs 13,956 crores	Rs 16,425 crores
OPM	17.40%	18.00%
Price to earnings	33.8	27
Price to book	9.3	7.4

Disclaimer

Investing in stocks poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies Pvt Ltd, the author, and the brokerage houses are not liable for any losses caused as a result of decisions based on the article. Investors should take care because the markets have hit record peaks in the last few days.