This Maharatna Stock's Net Profit Up 51%, Buy For 29% Return, Gas Transmission Expansion: HDFC Securities

 

Stock To Buy: Target Price & Financial Result

The Current Market Price (CMP) of GAIL is Rs. 140. HDFC Securities has estimated a Target Price for the stock at Rs. 180. This stock has the potential to give 28.57% return, in the upcoming 1 year. This is a large-cap stock with a market capitalization of around Rs. 58,255 crore.

In Q1FY23, the company's EBITDA/APAT, at Rs. 44/29bn, came in ahead of our estimates, mainly driven by higher-than-expected transmission and marketing volumes and higher marketing margins. For NG marketing, its Q1 revenue came in at Rs. 346bn (+2.4x YoY, +50% QoQ). GAIL's marketing volume was at 101mmscmd (+5% YoY, +6% QoQ) and trading margin stood at Rs. 2,618/tscm (+25% QoQ). The operating profit of the maharatna company came in at Rs. 24bn (+35% QoQ).

The company's petrochemical segment's revenue was reported at Rs. 15bn (+7% YoY, -42% QoQ), with sales volume at 109kT, (-21% YoY, -50% QoQ). Volume and revenue saw a sharp decline QoQ owing to plant shut down due to annual maintenance activities. However, this was offset by a higher realization of Rs. 134/kg (+35% YoY, +15% QoQ). But, operating profit declined to Rs. 2bn (-34% YoY, -66% QoQ).

HDFC Securities: Advantages Of The Stock

Commenting on the stock's advantages, HDFC Securities stated, "Our buy recommendation on GAIL is based on expansion in gas transmission volume over FY22-24E to 126mmscmd on the back of an increase in domestic gas production, increase in demand of RLNG, and completion of major pipelines in eastern and southern India. Our SOTP, at Rs. 180/sh, is based on 7x Mar-24E EV/e for the stable natural gas and LPG transmission business, 6x EV/e for gas marketing business, 5x EV/e for the cyclical petchem and LPG/LHC business, Rs. 49 for investments. The stock is currently trading at 6.6x FY24E EPS. We revise our FY23/24 EPS estimates by +3/-2% to Rs. 22.7/21.3 to factor in lower transmission and marketing volumes over FY23/24 and higher marketing margins for FY23, delivering a revised target price of Rs. 180/share."

Company portfolio: GAIL

GAIL (India) Limited is India's leading natural gas company with diversified interests across the natural gas value chain of trading, transmission, LPG production & transmission, LNG re-gasification, petrochemicals, city gas, E&P, etc. It owns and operates a network of around 14,488 km of natural gas pipelines spread across the length and breadth of the country. It is also working concurrently on the execution of multiple pipeline projects to further enhance the spread. GAIL commands ~70% market share in gas transmission and has a Gas trading share of over ~ 50% in India. GAIL and its Subsidiaries / JVs also have a formidable market share in City Gas Distribution. In the Liquefied Natural Gas (LNG) market, GAIL has a significantly large portfolio. GAIL is also expanding its presence in renewable energy like Solar, Wind, and Biofuel.

Disclaimer

The above stock was picked from the brokerage report of HDFC Securities. 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.