This Maharatna Stock Has 37% Upside Potential, Buy Says Motilal Oswal

Motilal Oswal, a brokerage company, has issued a buy rating on GAIL (India) Limited's stock. From the current market price of Rs 149.55 as of 4 February, 12:36 pm IST, the brokerage has set a target price of Rs 205. The maharatna stock has a potential upside of 37%, according to the brokerage. GAIL (India) Ltd is a large-cap gas and petroleum corporation with a market capitalization of Rs 66,983.21 crore.

3QFY22 results of GAIL

Motilal Oswal has said in a report that "GAIL reported a beat on all our numbers, primarily driven by multi-quarter high profitability in the Gas Trading business. Operating performance for LPG and Liquid HC also improved on a YoY and QoQ basis. The management guided that gas trading volumes would increase by 5- 6mmscmd in FY23. Commissioning and ramp-up of various fertilizer plants are also expected by Apr-Oct'22 which should aid volumes. Also, lesser cargoes are now being sold outside of India (six cargoes in 3QFY22 v/s eight in 2QFY22) on the back of improved demand from pre-commissioning and ramp-up at fertilizer plants in India. It remains confident about bringing all the cargoes to India over the next year - as the Sindri, Barauni, and Gorakhpur fertilizer plants get commissioned."

According to the brokerage "The petchem plant currently operates at a 115% utilization rate, and it would achieve 100% utilization for the full-year FY22 despite the low utilization in 1QFY22. Petchem margins improved 13%/1%/31% QoQ in Jan'22 for PE/PP/PVC, supported by a spike in product prices; we expect them to remain robust over the near term. Gas transmission volumes were flattish at 114mmscmd during the quarter. Currently, it has declined to 104mmscmd as few fertilizer plants have taken shutdown. The management expects to reach volumes of 110mmscmd once the fertilizer plants that are currently shut down resume operations. Annually, 5-6% growth is expected."

Buy With A Target Price of Rs 205

Motilal Oswal has claimed that "GAIL expects gas transmission volumes to grow 5-6% YoY over the next 2-3 years. Increased demand would be seen from the commissioning of fertilizer plants, ongoing refinery and petchem expansions, and the development of CGDs. The CAPEX guidance for FY22 stands at INR75b (of which INR45b was spent in 9MFY22), and a similar CAPEX is planned for FY23 as well. GAIL is currently executing various projects worth INR400b."

According to the brokerage "The company has spent INR128b on the Urja Ganga pipeline to date and expects utilization to reach 60-75% by the end of next year. The petchem expansion at the PATA and Usar plants is on schedule (the contract and licensing work have already been completed). The stock trades at a ~28% discount to its one-year forward long-term PE average. Valuing the core business at 10x FY24E adj. EPS of INR17 and adding the value of listed and unlisted investments of INR35, we arrive at a Target Price of INR205/share. The biggest risk to our call is a sharp decline in Asian spot LNG prices before the fertilizer companies commence operations, which may bring uncertainty to the Trading segment."

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.