Sharekhan has given Buy recommendation for GAIL with a target price of Rs. 196 in its research report issued on Feb 03, 2022
Sharekhan’s research report on GAIL
Q3FY22 PAT of Rs. 3,288 crore, up 121%/15% y-o-y/q-o-q was significantly above our and street estimate led by exceedingly high profitability in the gas marketing biz (EBITDA up 60% q-o-q) and LPG-LHC (EBITDA up 24% q-o-q) and higher other income. Robust performance of the gas marketing division reflects higher implied gas trading spreads given the benefit of high spot LNG prices, while higher LHC realisations (up 26% q-o-q) and better volume (up 5% q-o-q) lifted performance of LPG-LHC segment. EBITDA of gas transmission/petchem segments remained steady on q-o-q. The management indicated that gas trading margins may moderate little bit in Q4 and gas transmission volume to see some q-o-q decline due to shutdown of fertiliser plants. GAIL guided for a steady increase in gas transmission/marketing volumes and sustained petchem profitability; hike in domestic gas prices would only minimally impact LPG-LHC margins given higher LPG prices.
Valuation of 5.7x FY23E EV/EBITDA is attractive considering a strong earnings growth outlook and improving return profile (expect RoE of 16% over FY22E-24E). We maintain a Buy on GAIL with an unchanged PT of Rs. 196.