Buy GAIL (India): target of Rs 175: Sharekhan

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Sharekhan's research report on GAIL (India)

Recent sharp rally in oil price has improved the earnings outlook for GAIL’s downstream segments – petchem and LPG-LHC. Higher oil/stable spot LNG price of $6-7/mmbtu to improve competitiveness of GAIL’s US LNG contracts and drive strong earning growth (expect a 29% PAT CAGR over FY21E-FY23E). Higher petchem plant utilisation (already at 106%) and commissioning of pipeline infrastructure projects (Urja Ganga and Barauni-Guwahati) to drive sustainable growth for gas transmission/marketing volume. Potential inclusion of gas under GST and likely value unlocking from monetization of gas pipeline assets would be key re-rating catalyst for GAIL in FY2022.

Outlook

GAIL is trading at an attractive valuation of 6.5x its FY2023E EV/EBITDA (27% discount to historical average EV/EBITDA multiple) and offers healthy dividend yield of ~5%. Hence, we maintain our Buy rating on GAIL with a revised PT of Rs. 175.

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