Buy GAIL (India); target of Rs 150: Sharekhan

Sharekhan's research report on GAIL (India)

We believe superior gas transmission volume growth (management guidance of 124 mmscmd/140 mmscmd by FY24/FY26) and potential further tariff hike in transmission tariff post recent 33% increase would boost gas transmission EBITDA. Improving LPG price (given rise in propane price) and cap on APM gas price would drive a strong recovery in the earnings of LPG-LHC. Petchem segment to turnaround gradually given improved utilisation, a recent marginal uptick in HDPE price and soft LNG prices. GAIL’s US LNG contracts (5.8mtpa) are available at a steep discount to Asian spot LNG price of ~$14-15/mmBtu, and the same augurs well for strong margin-led earnings (management guidance of Rs3,500 crore) for gas marketing business.

Outlook

We reiterate our Buy rating on GAIL with an increased PT of Rs. 150 (rollover of valuation to Sep’25) given our expectation of 29% PAT CAGR over FY24-26E, healthy RoE of 16% and attractive valuation of 6.6x/5.9x FY25E/FY26E EV/EBITDA. Strong gas transmission volume/tariff outlook, soft global LNG price and gradual recovery in LPG/petchem prices are key triggers for earnings growth.