GAIL rises 4% post Q4 show; CLSA upgrades stock to ‘Buy’ with 20% upside in target

Shares of Gas Authority of India (GAIL) added 4 percent in the morning trade as investors cheered a four-fold jump in its profits for the March quarter.

The stock touched an intraday high of Rs 319.95 and an intraday low of Rs 311.00.

The state gas utility major reported a net profit of Rs 1,021, up 293 percent from Rs 260 crore in the same period of last fiscal.

The profit in fourth quarter was higher due to a one-off impairment GAIL had taken on its investment in Dabhol LNG terminal in the corresponding quarter of previous fiscal.

Turnover was up 13 percent at Rs 15,396 crore.

For the full fiscal 2017-18 that ended on March 31, the company posted a record net profit of Rs 4,618 crore, 32 percent more than Rs 3,503 crore net profit of previous fiscal. Turnover was up 10 percent at Rs 53,690 crore.

Global brokerages are positive on reduced risk from US LNG going forward. CLSA, in particular, sees it as a neat play on higher crude prices.

GAIL

Brokerage: CLSA | Rating: Upgrade to Buy from Sell | Target: Raised to Rs 405 from Rs 337.5

CLSA believes that the stock is a neat play on higher crude and addressing of risk on US LNG. It has raised FY19 and FY20 EPS estimate By 15 and 20 percent. It also said that China demand & crude spike has turned US LNG from a headwind to a tailwind. Among triggers for the stock include tariff hike for DUPL pipeline & potential actions to curb petcoke use.

Brokerage: Nomura | Rating: Buy | Target: Rs 450

The global research firm said that outlook for the firm remains robust even if Q4 was a miss on weak marketing. It sees the company surprising on US LNG profits front from the second half of this fiscal.

Brokerage: Deutsche Bank | Rating: Hold | Target: Rs 340

Deutsche Bank observed that gas trading and petchem segment was a disappointment. It raised FY19-20 EPS by 3-4 percent. It sees high oil prices and lower natural gas costs as key risks to the firm.

Brokerage: Morgan Stanley | Rating: Overweight | Target: Rs 510

The brokerage house said that high imported gas costs were key to the Q4 miss, but was an operationally good quarter. GAIL's contracted gas sourcing should shield it from seasonal volatility, it said, adding that oil to gas differentials widen and concerns about contracted LNG diminish.

Brokerage: Citi | Rating: Neutral | Target: Rs 367

Citi said that gas volumes were expectedly lower on a quarter on quarter basis. It also said that gas trading sharply disappointed. Petchem performance still eludes, it said, adding that LPG is stable.