1:2 Bonus Issue: Maharatna PSU Oil & Gas Stock GAIL Falls 6.5% From Sept 2-6; BUY/SELL This Low PE Share?

Maharatna PSU oil and gas giant, GAIL (India) share price witnessed a significant drop during the trading session between September 2-6 amid high volatility in crude oil prices. Also, GAIL's stock dipped even after the government reduced windfall tax to Rs 1,850 per tonne on domestically produced crude oil compared to the previous price of Rs 2,100 per tonne. The majority of brokers have mixed opinions on GAIL.

GAIL share price dipped by 2.3% on BSE, after market hours of September 6, to end at Rs 222.95 apiece. The company's market cap is at Rs 1,46,591.85 crore. Despite the latest drop, the stock is still near its 52-week high of Rs 246.35 apiece, while nearly doubled from its 52-week low of Rs 116.20 apiece.

In the trading week from September 2-6, GAIL shares are down by 6.5% on BSE. In a month, the stock slipped by nearly 2%. YTD, however, the stock is up by 34%.

Currently, in the global and domestic markets, crude oil prices have witnessed significant correction, with volatility persisting.

As per Pranav Mer, Vice President, EBG - Commodity & Currency Research, JM Financial Services, oil price continues to see high volatility but overall has remained under selling pressure amid further signs of deteriorating global economic outlook leading to sluggish demand (especially from China), but downside looks limited for the day amid support from bigger than expected drawdown in oil inventories and OPEC+ member's decision to continue with their additional output cuts.

Further, on August 31, the government trimmed windfall tax on domestically produced crude oil to Rs 1,850 per tonne, while keeping taxes on export of diesel and aviation turbine fuel (ATF) nil.

This natural gas producer 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.

The company 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.

However, GAIL has not split its stock price as of now.

It is undervalued?

As per Trendlyne data, GAIL stock rose 78.83% and underperformed its sector by 5.6% in the past year. While its Debt to Equity Ratio of 0.24 is less than 1 and healthy, implying that its assets are financed mainly through equity. Also, the Price to Earning Ratio is 12.98, lower than its sector PE ratio of 30.72. Further, the Return on Equity(ROE) for the last financial year was 12.85%, in the normal range of 10% to 20%. Moreover, Promoter Share Holding increased by 0.02% in the most recent quarter to 51.92%. Meanwhile, Promoter Pledges are zero.

Additionally, as per the Alpha Spread report, the intrinsic value of one GAIL stock under the Base Case scenario is 242.4 INR. Compared to the current market price of 231.5 INR, GAIL (India) Ltd is Undervalued by 4%.

BUY/SELL GAIL?

The consensus recommendation from 31 analysts for GAIL (India) Ltd. is HOLD, as per Trendlyne. The average 1-year target price is set at Rs 237.06, signalling a 6.4% potential upside ahead.

Meanwhile, Antique Stock Broking recommended selling on GAIL stock for a target price of Rs 196. On the other hand, JM Financial has suggested BUY on GAIL for a target price of Rs 250.

Recently, GAIL inked a Memorandum of Understanding (MoU) to jointly explore setting up a 500 Kilo Tons per Annum (KTA) bio-ethylene plant along with its downstream unit(s) in India, based on bioethanol produced in the plant in a 50:50 Joint Venture (JV) mode. In line with the MoU, GAIL and Petron will jointly undertake feasibility studies to ascertain the technical viability and financial prospects of the project. Both parties endeavour to secure investment approval from their respective management for investment in the project and forming a JV company.

About GAIL: GAIL, a Maharatna Central Public Sector Enterprise, is India's leading natural gas transmission and distribution company with gas transmission & distribution pipelines, processing and petrochemicals plants besides interest in upstream oil & gas blocks and LNG regasification terminals in India. GAIL is dedicated to enhancing the nation's energy infrastructure and promoting sustainable development through various initiatives in natural gas, petrochemicals, and renewable energy.