Shares of GAIL (India) Ltd. gained the most in a week as Jefferies and Morgan Stanley bet on potential gains from a tightening LNG market, rising domestic demand and higher oil prices.
“The share price will rise in absolute terms over the next 60 days”, Morgan Stanley said in a note. “The decline in Henry hub gas prices, due to local export capacity outage for the next three months (referring to the Freeport LNG fire), should be positive for GAIL as it expands marketing margins for 40% of the portfolio gas it imports from the U.S.”
Also, with domestic demand steadily improving with ramp up of fertiliser capacity along with higher LPG prices and strong oil prices should be “supportive of earnings”, Morgan Stanley said.
It found the stock's valuation “attractive” and said it has a tailwind of an earnings upgrade cycle as clarity on certain pipeline tariffs emerges. The research house set a target price of Rs 207 apiece, implying a potential upside of 41%.
Jefferies, in a June 14 note, said the tightening of the global LNG market is supportive of trading and petchem profitability over the second half of 2022 for GAIL.
It, too, likes the valuation, saying it is still one standard deviation below the seven-year average PE ratio, making “risk reward favourable”. It set a price target of Rs 180 apiece, implying a potential upside of 23%.
Jefferies concurred with Morgan Stanley on GAIL's potential gains from the outage due to a fire incident at U.S.-based Freeport LNG terminal.
The incident “has eliminated around 10% of Europe's LNG import volumes for the next three-six months. This has increased gas availability in the U.S., softening prices while hardening prices in the European LNG market”, which is a tailwind for the Indian gas refiner.
Shares of GAIL gained as much as 3.3% to Rs 151.9 apiece before ending 0.4% higher on Wednesday. Of the 33 analysts tracking the company, 30 recommend a ‘buy' and three suggest a ‘hold', according to Bloomberg data. The average of the 12-month consensus price target implies an upside of 28%.
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