GAIL share price tanks 4% despite healthy Q1 earnings; should you buy, hold or sell?

GAIL India share price tanked over 4% on Friday after the company posted a consolidated net profit of Rs 3,250.95 crore in April-June compared to Rs 2,157.15 crore net profit in the same period a year back. The board of directors of the nation’s largest gas utility firm last month recommended the issue of one bonus share for every two existing equity shares. So far this year, GAIL India share price has risen 1.18%, outperforming benchmark indices marginally. Analysts remain bullish on the stock and see up to 60% potentially rally going forward. The stock was quoting at Rs 133, down 4.96% on NSE intraday.

Should you buy, hold or sell Gail shares?

ICICI Securities: BuyTarget price: Rs 225

According to ICICI Securities analysts, Very high differentials between Asian LNG prices and US Henry Hub benchmarks continue to drive trading gains for GAIL, albeit with the suspension of around 2mt (~7mmscmd) of gas supplies from Gazprom due to the ongoing geopolitical issues, both trading segment gains as well as gas availability for the petchem segment would be constrained over the rest of FY23E. “Our base case estimates were already conservative for trading segment and hence, despite factoring in lower volumes for transmission/trading, we see a small jump in FY23E EPS, while FY24E EPS sees a minor downgrade,” they said. The brokerage reiterates ‘buy’ rating on the stock with a target pricr of Rs 225, implying 60% upside.

Prabhudas Lilladher: BuyTarget price: Rs 180

Analysts at brokerage firm Prabhudas Lilladher have increased their FY23E earnings by 24% to factor higher gas trading profits. They believe that recovery in commodity prices inline with the recovering economy augurs well for GAIL. Also, commissioning of new pipelines over next one year will augment volumes and profits. “While, sharp rise in US Henry Hub (HH) gas prices to USD7.2/mmbtu for Q2FY23 YTD from USD4.1/mmbtu for FY22 is a concern, but high spot LNG prices of over USD40/mmbtu will support GAIL’s trading earnings, they said. The brokerage reiterates ‘buy’ rating on the stock with a target price of Rs 180, up from Rs 170 earlier.

HSIE: BuyTarget price: Rs 180

HDFC Securities Institutional Equities analysts also maintains a ‘buy’ rating on the stock with a target price of Rs 180. The call is based on expansion in gas transmission volume over FY22-24E to 126mmscmd on the back of increase in domestic gas production; increase in demand of RLNG, and completion of major pipelines in eastern and southern India. The research firm revised its FY23, FY24 EPS estimates by over 3 and -2% to INR 22.7 and 21.3 respectively to factor in lower transmission and marketing volumes over FY23-24 and higher marketing margins for FY23, delivering a revised target price of Rs 180 per share.

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Edelweiss: BuyTarget price: Rs 174

Edelweiss Securities believes that GAIL is a diversified play on India’s gas consumption with growth driven by transmission, marketing volume growth and higher petchem capacity. “It has guided for Rs 30,000 crore capex over FY23–25. We are cutting FY23/24E EBITDA by 6%/6% on weak near-term outlook, which brings down the TP by 6% to Rs 174 (earlier Rs 186),” it said. The brokerage further added that Gail’s LPG extraction is strong on high crude prices despite a 13% on-year volume dip. A 50% rise in APM cost in H2 shall limit the rise in LPG margin. “GAIL has 71 projects underway (~40% volume growth by CY24E). A weak outlook brings down our FY23/24E EBITDA by 6%,” it added.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. FinancialExpress.com does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)