Shares of GAIL India gained 1.5 percent intraday on August 22 after Emkay upgraded the stock to buy on favourable risk-reward.
The stock had corrected around 30 percent in last nine months due to much lower-than-expected tariff hike for its Hazira-Vijaipur-Jagdishpur pipeline, followed by buzz about unbundling.
Hence the risk-reward is favorable with current market price below the bear-case valuation of Emkay which as a result upgraded GAIL to buy from hold, but cut target price by 15 percent to Rs 150.
The target cut was after it reduced FY20/21 EPS estimates by 3 percent each and blended target multiples to 5.5x from 6.5x taking a conservative stance.
The brokerage said the state-owned natural gas processing and distribution company's Q1FY20 earnings were broadly in line as the shutdown-led loss in petchem was offset by better-than-expected gas marketing margins.
Management commentary on outlook remains unchanged.Oil price is the only key downside risk to earnings, it said.
Emkay believes selling pipeline business would be challenging, as besides usual legacy PSE (public sector enterprise) issues, transmission is a strategic, high capex-low return business, and hence, unattractive to private parties. A sale to CPSEs IOCL and/or BPCL could be positive for minorities, it feels.
GAIL stands to benefit from higher gas supplies in the country - both domestic and LNG — it said.
The stock was quoting at Rs 124.10, up Rs 1.60, or 1.31 percent on the BSE at 1252 hours IST.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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