Buy GAIL (India): target of Rs 140: Sharekhan

Sharekhan's research repor on GAIL (India)

GAIL has cash balance of ~Rs. 1,614 crore, which makes it likely strong candidate to announce share buyback among PSUs. Earnings outlook has also improved as a sharp increase in spot LNG price to $6/mmbtu could help reverse H1FY2021 loss in the gas trading business, while the increase in HDPE prices bodes well for sustained improvement in the profitability of the petchem business. GAIL is likely to be the key beneficiary of government’s aim to increase share of gas in India’s energy mix to 15% by 2025 (versus only 6% currently) as the same provides sustainable volume growth opportunity for its gas pipeline and trading business. GAIL is trading at an attractive valuation of 5.6x its FY2023E EV/EBITDA (37% discount to historical average EV/EBITDA multiple) despite sharp run-up of 39% in the stock price in the past one month.

Outlook

We retain our Buy rating on GAIL with a revised PT of Rs. 140, as unified tariff regulation is structurally positive for long-term volume growth.

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