GAIL shares rally to inch towards 52-week high. Should you buy?

“Lower spot LNG price will have a positive impact on opex of transmission business as the company uses spot LNG to fulfil the gap, lower input cost for Petchem division, and revival in transmission volume. However, trading profit may soft owing to reducing gap between spot and contracted price. Further, integrated tariff for its key nine pipeline is expected in March (after 6th march of open house),” said brokerage Systematix Institutional Equities in a note.

The brokerage has raised tariff to ₹1.9/scm for FY24E/FY25E from earlier ₹1.6/scm while it cuts the trading profit on LNG portfolio by 10%. Overall, it has raised EBITDA estimate by 11%/9% for FY24E/FY25E. However, lower spot LNG price would re-rate the sector. The brokerage has upgraded GAIL shares’ rating to Buy from earlier Hold with a revised target price of ₹120 from earlier ₹98 apiece.

“Geared to India’s gas consumption. Trades at 8x FY25E P/E. The government highlighted its focus on increasing gas adoption Trunk pipelines: largely done by GAIL. The PNGRB said that it is creating conditions to enable GAIL earn a ‘fair return’ on its pipeline investments allowing for transmission losses and pipeline expansions. PNGRB also believes that the modified unified tariff framework with three tariff zones (0-300 km, 300-1,200 km and 1,200 km+) would help drive gas adoption in new markets,” said brokerage and research firm Ambit which has maintained Buy tag on the stock with a target price ₹106.

State gas utility GAIL (India) Ltd reported a 90% decline in its December 2022 third quarter (Q3) net profit after suffering losses in petrochemical and natural gas marketing business. Its consolidated net profit of ₹397 crore in October-December 2022 was compared with ₹3,800 crore earning in the same period a year ago.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.