GAIL Share price: Buy with target of Rs 145-Rs 150 with stop loss of Rs 134, says expert
Sharekhan says that GAIL’s valuation of 6.5x its FY2023E EV/EBITDA (27% discount to historical average one-year forward EV/EBITDA multiple of 9x) seems attractive, given expectation of strong earnings revival, potential value unlocking from monetisation of gas pipeline assets, and dividend yield of 5%
GAIL Share price closed at Rs 140.25, up Rs 4.75 or 3.5%. GAIL Share price is up by 10% from Rs 128 to Rs 140 in 1 week. Sharekhan says that GAIL’s valuation of 6.5x its FY2023E EV/EBITDA (27% discount to historical average one-year forward EV/EBITDA multiple of 9x) seems attractive, given expectation of strong earnings revival, potential value unlocking from monetisation of gas pipeline assets, and dividend yield of 5%. Hence, Sharekhan says it has maintained a Buy rating on GAIL with a revised price target of Rs 175 (reflects higher value for the petchem segment and increased value of listed investments).
Sharekhan says that the recent sharp recovery in Brent crude oil price has considerably improved the earnings visibility for GAIL’s downstream businesses (petrochemical and LPG-LHC segments, both combined accounted for 37% of overall EBITDA in Q3FY2021). International HDPE price has improved sharply and is hovering at $1150/ tonne currently as compared to $1011/mt in Q3 FY21. GAIL’s petrochemical plant is running at full utilisation (106% in Q3 FY21).
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Technical Analysis on GAIL:
Sumeet Bagadia, Executive Director of Choice Broking has also recommended GAIL to investors. On the daily time frame, Gail has taken a multiple support at Horizontal Line and pulled back from there, he said and added that the price has shifted within the Ichimoku Cloud formation, which indicates bullish strength in the counter. Sumeet said GAIL should be bought with target of Rs 145 - Rs 150 with stop loss of Rs 134
Sharekhan says that potential inclusion of natural gas under the GST regime could substantially improve gas consumption in India and could act as a key trigger for volume growth across GAIL’s gas transmission and marketing segments. Sharekhan has increased its FY2022-FY2023 earnings estimates to factor in higher EBITDA from the petchem business and expect GAIL’s EBITDA/PAT to post a strong 30%/29% CAGR over FY2021E-FY2023E.
GAIL Key Risks:
Lower-than-expected gas transmission and marketing volumes amid COVID-19 demand slowdown. A sharp decline in LNG price and international oil prices could impact profitability of gas trading, petrochemical, and LPG-LHC segments.
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