1:2 Bonus Issue: BUY Maharatna PSU Oil & Gas Stock GAIL That Rose By 99% From Lows; JM Financial Raises Target

Brokerage JM Financial has raised its target price on Maharatna PSU oil and gas company, GAIL (India) ahead of its financial results for Q2FY25. In the upcoming quarter, JM Financial believes that GAIL's EBITDA to decline 7% QoQ due to normalisation of transmission volume and trading margin. This PSU stock has surged by nearly 99% from its 52-week low, and is currently around Rs 230 levels. There is potential of more than 10% upside in GAIL ahead.

In its preview report, JM Financial said, India's domestic gas demand in 2QFY25 is expected to decline by 5-6% QoQ driven by normalisation of LNG demand post peak summer demand and due to high spot LNG prices.

Hence GAIL could see a 3.6% QoQ decline in 2QFY25 gas transmission volume to 127mmscmd while gas trading volume could be flattish QoQ at 99mmscmd.

However, JM's note also said that GAIL's Petchem sales volume may recover QoQ to 240kt (from 169kt in 1QFY25) and LPG sales volume could be 15% higher QoQ at 250kt. GAIL's 2QFY25 EBITDA could decline 6.9% QoQ at INR 42.2bn due to: a) 2.5% QoQ decline in gas transmission EBITDA; b) 10.3% QoQ decline in gas trading EBITDA on a high base; c) rise in LPG earnings driven by higher sales volume; and d) higher petchem margins on recovery in volume after shut-down in 1QFY25 and slightly higher end-realisation.

Accordingly, JM Financial has recommended BUY on GAIL for a target price of Rs 255.

GAIL (India) Share Price:

GAIL's stock price currently is at Rs 231.05 apiece on BSE, with a market cap of Rs 1,51,917.68 crore. The stock's 52-week high and low is at Rs 246.35 apiece and Rs 116.20 apiece.

From its 52-week low, GAIL is currently up by 98.84% on BSE. YTD, GAIL stock is up by nearly 39%. In a year, the upside is strong by nearly 78%. However, GAIL has emerged as a multi-bagger with its 5-year gains of 167.4%.

GAIL is among the leading PSU stocks that pay hefty dividends. As per Trendlyne data, GAIL has paid up to 47 dividends since September 2001. GAIL is also among the highest bonus issue distributors to its investors.

Noteworthily, the natural gas producer has a long track record of rewarding bonus shares. The first time, GAIL turned ex-bonus was on October 6, 2008, for its bonus issue in the ratio of 1:2. After nearly a decade, GAIL rewarded two back-to-back bonus shares of 1:3 each in March 2017 and March 2018. Later on, the company also paid bonus shares in the ratio of 1:1 in July 2019. The latest bonus issue is of 1:2 which was in September 2022.

GAIL (India) Limited is India's leading natural gas company with diversified interests across the natural gas value chain of trading, transmission, LPG production & transmission, LNG re-gasification, petrochemicals, city gas, E&P, etc. It owns and operates a network of around 16240 km of natural gas pipelines spread across the length and breadth of country. It is also working concurrently on execution of multiple pipeline projects to further enhance the spread. GAIL commands ~66% market share in gas transmission and has a Gas trading share of over ~ 54% in India.