Bull Vs Bear: GAIL Retains 'Buy' From Motilal Oswal, Citi; Emkay Maintains 'Reduce'

Motilal Oswal and Citi Research have maintained a 'buy' on GAIL (India) Ltd. as it is expected to meet its transmission volume growth and benefit from potential tariff hike, according to brokerages.

The company is also exploring opportunities to import ethane as its gas pipeline is getting tighter. GAIL and Oil and Natural Gas Corp. have signed a memorandum of understanding with Shell to import ethane at the latter’s Hazira terminal.

However, Emkay Global retains a 'reduce' rating on the stock, pointing out key risks like adverse commodity price margin, regulations and outages.

• Motilal Oswal Financial Services Ltd. maintains a 'buy' rating on GAIL at a target price of Rs 215 apiece, implying a potential upside of 17.32% from Monday's closing price.

• The brokerage remains positive on the firm on capex-cycle unwinds.

• The management is exploring ethane import at its plant in Pata, Uttar Pradesh.

• GAIL commenced 2% hydrogen blending in its city gas distribution network in Indore.

• The company's green hydrogen plant will be commissioned in May.

• Motilal Oswal expects a 14% compound annual growth rate in Ebitda over the financial year 2024–26.

• Ebitda growth on rising volumes, petrochemical financial improvement.

• Citi Research maintains a 'buy' on GAIL with a target price of Rs 200 apiece, implying a potential upside of 9.1% from Monday's closing price.

• Management reiterated their target of transmission volumes is expected to increase 6% to 132 million standard cubic metres per day by the next fiscal from 124 mscmd in the third quarter of the current fiscal.

• The company is optimistic of the Petroleum and Natural Gas Regulatory Board raising tariffs for GAIL based on the review petition filed by the company for fuel cost pass-through. However, a petition is still pending for hearing.

• Its gas trading Ebitda guidance of Rs 55/40/45 billion for FY24/25/26 — it stood at Rs 47 billion for the first nine months of the fiscal.

• The improvement in petrochemical Ebitda to Rs 2.1 billion in the third quarter after five quarters of losses is sustainable. This resonates with Citi's view.

• Emkay Global retains a 'reduce' rating with a target price of Rs 145, implying a potential downside of 20.8% from Monday's closing price.

• The management said rich gas supplies are getting tighter. Hence, GAIL may look at ethane sourcing from the U.S. for Pata via the Very Large Ethane Carrier and import through various terminals.

• The company's 4.3-tonne-per-day green hydrogen plant is to be commissioned by May. The approved cost is Rs 2.3 billion, while the actual cost could be Rs 1.4 billion.

• The company had assigned 6 times the blended target EV/Ebitda to the core business, with an estimated December 2024 target price of Rs145 per share.

• Key risks: adverse commodity price margins, regulations and outages.

On the NSE, GAIL's stock fell as much as 1.9% during the day to Rs 179.85 apiece, the lowest Feb 29. It was trading 1.69% lower at Rs 180.15 per share, compared to a 0.19% advance in the benchmark Nifty 50 at 12:26 p.m.

The share price has risen 63.57% in the last 12 months. The relative strength index was at 49.29.

Twenty-one out of the 35 analysts tracking the company have a 'buy' rating on the stock, seven recommend 'hold' and as many suggest 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 1.4%.