Gail India stock target raised on Ebitda growth, retains underperform

Gail India stock target raised on Ebitda growth, retains underperform
Credit: © Reuters.

On Monday, Gail India Ltd.'s stock (GAIL:IN) (OTC: GAILF) saw its price target increased by Jefferies to INR167.00, up from INR150.00. Despite the higher price target, the firm maintained its Underperform rating on the shares. The revision follows Gail India's reported Ebitda, which exceeded expectations due to stronger performance in Gas Transmission (Tx) and Petrochemicals sectors, although Trading underperformed.

The management of Gail India has reiterated its transmission volume targets for the fiscal years 2025 and 2026, aiming for 130/140 million standard cubic meters per day (mmscmd). They also expressed optimism about a favorable outcome for their request to the Petroleum and Natural Gas Regulatory Board (PNGRB) for higher tariffs. On the downside, the firm highlighted concerns that the recent rally in spot LNG prices might soften LNG demand, potentially impacting transmission volumes negatively.

Jefferies projects a 2% compound annual growth rate (CAGR) in Ebitda from fiscal year 2024 through 2026, based on an already elevated base. Despite the growth forecast, the analyst pointed out that the stock is trading at more than 2 standard deviations above the long-term forward Ebitda.

This valuation suggests that the risk-reward balance for investors is not favorable, leading to the decision to maintain the Underperform rating alongside the new price target of INR167.00.

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