GAIL
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-1.10 (-1.17%)
NSE Volume
181.9L+
Broker Reports
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GAIL India is a Government of India undertaking. The company processes and distributed natural gas and liquified petroleum. Q4FY20 standalone revenue declined 5.4% YoY to Rs. 17,755cr, impacted by weaker pricing and nationwide lockdown. EBITDA rose 47.0% YoY to Rs. 2,475cr, along with expansion of EBITDA margin by 497bps YoY to 13.9%. EBITDA growth was majorly driven by lower operating costs. Reported PAT grew 168.9% YoY to Rs. 3,018cr, further helped by deferred tax reversal of Rs. 1,588cr. We expect commodity price and economy revival post lockdown to pick up along with the withdrawal of claim by DoT. Given current upside potential, we upgrade our rating to BUY on the stock with a revised target price of Rs. 119 based on SOTP valuation.
BUY
We believe hiving off of the pipeline business will take more than a year, which would be the key overhang for the stock. We expect GAIL’s earnings to clock just 10% CAGR over the next 3 years. We expect the Company to witness a strong FCF generation of Rs115bn over FY20-FY22E. The stock provides high earnings visibility and healthy RoE/RoCE of 12%/13% over the next 3 years. At CMP, the stock trades at 6.1x of FY21E EBITDA, which is at discount to its long-term average of 7.4x (over the last 5 years). We maintain our BUY recommendation on the stock with a DCF- based Target Price of Rs154.
BUY
GAIL management reinforced the feel good results - 7.4% beat on PAT at Rs12.5bn, albeit with guarded optimism about future prospects. The company said that the vastly improved margins in gas trading from a quarter ago is likely to be sustainable, although a plunge similar to 2QFY20 cannot be ruled out given the volatile nature of the business. Management also asserted that fears of a further crash in LNG prices were unfounded. The sudden collapse of the Chinese gas market in the aftermath of corona outbreak is likely to be short-lived, according to GAIL. The Petchem segment also saw EBIT loss declining from a quarter ago (Rs85mn vs. Rs82.3mn), based on scale, operating efficiency gains and cheaper gas feedstock. The phased completion of JHBDPL project will likely support gas transmission volume growth of about 4mmsmcd each in FY21 and FY22 and eventually about 10mmscmd from the five gas-based fertilizer plants being revived along the pipeline route. The Jagdishpur-Patna stretch is ready and the rest of the sections are progressing on track. Management also confirmed that the Kochi-Mangalore pipeline will be ready by end March 2020 and will likely support doubling of volume handled by PLNG’s gas import terminal at Kochi in FY21. We maintain Buy based on the 28% upside from CMP to our SOTP based TP of Rs156, based on long term growth and attractive valuation. The one time hike in dividend payout to 60%- as per government request - is an added support for the stock.
BUY
We lower our FY20-22E earnings to incorporate lower LPG and petchem realization. We expect GAIL’s capex trajectory to pick up as all businesses ex-pipeline operate at near peak levels. Maintain “BUY” with DCF-based PT of Rs170 (Rs188).
BUY
Since the Union Budget in Jul’19, the possible restructuring of GAIL is a big concern. This coupled with concerns over US LNG contracts and poor petrochemical margins, has resulted in GAIL underperforming the Nifty by ~22%. We believe that the demand from fertilizer plants would de-risk 60% of US LNG volumes, while petrochemical margins would recover with the revival in global economy. Trading at ~40% discount to long term one-year forward P/E of 14.0x, GAIL presents an excellent investment opportunity. We expect EBIDTA CAGR of ~7% over FY19-22 with FY21 EV/EBITDA of 3.2x. Transmission segment should remain a major contributor to EBIDTA (>45% share) and volumes are expected to grow to ~135mmscmd in FY22. The stock currently trades at an attractive valuation of 8.9x FY21E EPS of INR13.5 and PBV of 1.0x FY21E BV of INR115.5. The company has maintained strong dividend pay-out of ~35%, yielding 3.2% per share. We value it at 8x FY21E EPS (adjusted for other income) and then add the value of investments. With a target price of INR155, we reiterate Buy.
BUY
Downstream plant shutdown hit profits
We tweak our FY20/21E earnings to incorporate annual report changes. Weexpect GAIL’s capex trajectory to pick up as all businesses ex-pipeline operate at near peak levels. Valuations remain attractive but concerns on demerger of pipeline remain an overhang. Maintain “BUY” with DCF-based PT of Rs207 (Rs241), as we increase our capex assumptions.
We tweak our FY20/21E earnings to incorporate annual report changes. Weexpect GAIL’s capex trajectory to pick up as all businesses ex-pipeline operate at near peak levels. Valuations remain attractive but concerns on demerger of pipeline remain an overhang. Maintain “BUY” with DCF-based PT of Rs207 (Rs241), as we increase our capex assumptions.
ACCUMULATE
DART view: Stock factoring most negatives, limited downside Transportation tariff hike was the key trigger for GAIL in the short and medium term. However, the increase in tariff was much lower than expected. The US LNG cargo issue appears to be factored in the stock price, at least for the next few quarters. GAIL has sold its U.S. LNG volumes until 2020, as well as upto 90% beyond 2020. The stock price seems to be factoring in most of the negatives. We see limited downside in the stock from here on. We maintain Accumulate, with a target price of ` 153 (10x FY21E).
HOLD
With a decline in LPG/liquid hydrocarbon prices globally, Gail’s realisationswill be lower. This will have an impact on the earnings. We reduce LPG/liquid hydrocarbon business value to | 21 per share to factor in lower realisations. Also, lower-than-expected revision in HVJ pipelines by PNGRB earlier sometime back had an impact on the company’s earnings growth. On theother operational business front, stable and growing CGD businesses would serve as a support for the stock. We value the company using the SOTP methodology. We value the core business using DCF and assign a target multiple to the EBITDA of other business segments with a HOLD recommendation and a target price of Rs 160.
NEUTRAL
The stock is trading at 10.4x FY20 EPS and 6.2x FY20 EV/EBITDA. We value it at 9x FY21 EPS adjusted for other income and then adding the value of investments to arrive at a target price of INR346 (from INR351). Maintain Neutral.
BUY
We expect gas transmission volume to ramp-up from 107 mmscmd in FY19 to 120 mmscmd in FY21E.We cut our standalone EPS estimates to Rs.30.7 (-3%) in FY2020 and Rs.32.9 (-4%) in FY2021 factoring in (1) lower- than-assumed regulated tariffs for HVJ network, (2) higher tariffs for Mumbai regional network and (3) other minor changes. We value GAIL stock at Rs.440 per share based on FY2021 estimates.
NEUTRAL
The revised tariff comes in as a big disappointment, more so because we were considering it to be the only medium-term trigger for the stock. This apart, GAIL faces challenges on the other business fronts too:
(a) LPG – expanding global glut (b) Petrochemicals – upcoming global expansions (c) US long-term contracts – declining spot LNG pricesThe stock trades at 10.4x FY20E EPS and 6.2x FY20E EV/EBITDA. We value GAIL at 9x FY21E EPS adjusted for other income and then add the value of investments. With a target price of INR351 (unchanged), we reiterate ourNeutral rating on the stock.
(a) LPG – expanding global glut (b) Petrochemicals – upcoming global expansions (c) US long-term contracts – declining spot LNG pricesThe stock trades at 10.4x FY20E EPS and 6.2x FY20E EV/EBITDA. We value GAIL at 9x FY21E EPS adjusted for other income and then add the value of investments. With a target price of INR351 (unchanged), we reiterate ourNeutral rating on the stock.
BUY
We may see some correction in the stock owing to lower than expected transmission tariff hike for the pipelines that transmit ~67% of total volumes. However, we maintain our faith given the increase in volumes from the upcoming RLNG terminals and the completion of the Kochi-Mangalore and JHBDPL pipelines. Our TP is Rs 412/sh (7.5x Mar-20E EV/e to the more stable Gas and LPG transmission businesses, 5.0x EV/e to the more volatile gas marketing business, 6.5x EV/e for the cyclical petchem and LPG/LHC businesses, Rs 75 for investments and Rs 23/sh for CWIP).
HOLD
With lower-than-expected revision in HVJ pipelines by PNGRB, Gail’searnings and return on capital employed would be negatively impacted. We reduce gas transmission business value to Rs 148 per share. On the other operational front, stable and growing CGD businesses would serve as a support for the stock. However, lower product prices are expected to impact the performance petchem segment. We value the company using the SOTP methodology. We value the core business using DCF and assign a target multiple to the EBITDA of other business segments with a HOLD recommendation and a target price of Rs 360.
BUY
(1) Rising supply of NG and (2) A multitude of LNG liquefaction terminals coming on-stream towards the fag end of CY19 will boost RLNG exports from US and also keep Henry Hub (HH) prices subdued in the near term, enabling GAIL to swap more cargoes. Thus, the US LNG is not a stress point. Our SOTP target is Rs 408 (7.5x Mar- 20E EV/e to the more stable Gas and LPG transmission businesses, 5.0x EV/e to the more volatile gas marketing business, 6.5x EV/e for the cyclical petchem and LPG/LHC businesses, Rs 75 for investments and Rs 23/sh for CWIP).
BUY
On the operational front, stable gas volumes, further pipeline expansion and growing CGD sector would serve as key triggers for the stock. However, lower product prices are expected to impact performance petchem segment. We value the company using the SOTP methodology, valuing the core business using DCF and assigning a target multiple to the EBITDA of other business segments with a BUY recommendation and target price of Rs 415.
BUY
We leave our FY20/21E earnings unchanged as we have baked in conservative assumptions. We expect GAIL to benefit from likely implementation of unified pipeline tariff. However, we expect GAIL’s capextrajectory to pick up as all businesses ex-pipeline operate at near peak levels. Attractive valuation makes GAIL a “BUY” with DCF-based PT of Rs482.
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Price Target Potential
Brokerage
ICICIdirect.com
Target
180
Potential
25.96%
About
GAIL (India) Ltd.
NSE: GAIL | BSE: 532155 | ISIN: INE129A01019 | Sector: Petroleum
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