GAIL: MS, Jefferies expects GAIL shares to rise, margin gains likely

Mumbai: Analysts at Jefferies and Morgan Stanley are positive on GAIL as lower Henry Hub natural gas prices following a fire at Freeport LNG, one of the largest U.S. operators of liquefied natural gas (LNG) export terminals ), could boost the company’s profitability.

“Lower Henry Hub gas prices (due to unavailability of local export capacity for the next three months) should be positive for

as it increases marketing margins by 40% of the gas in its portfolio that it imports from the United States,” Morgan Stanley said in a note to clients. “We believe the share price will rise in absolute terms over the next 60 days. Shares of GAIL rose 0.5% to close at ₹147.70, above the day’s high of ₹151.90.

According to Reuters, damage to Freeport LNG from last week’s fire at its Texas plant will keep it completely offline until September with only partial operation until the end of the year.
“This has increased gas availability in the United States, softening prices while hardening prices in the European LNG market,” Jefferies said in a client note. “This is a tailwind for GAIL’s commercial and petrochemical profitability in fiscal 23E.” Jefferies has a price target of ₹180 on the stock. Morgan Stanley’s price target on the stock is ₹207.

Non-contract volumes tied to GAIL’s Henry hub will see strong arbitrage improvement as European and Asian LNG markets tighten due to loss of supply, Jefferies said.

Shares of GAIL are up 12.4% since January, compared to an 11% drop in the Nifty. Morgan Stanley said GAIL’s valuation – measured by the price-earnings (PE) ratio – at 8 times estimated earnings for FY23 is not only attractive, but also riding high from a betting cycle. earnings level as clarity on certain pipeline rates emerges.

“Additionally, domestic demand steadily improving with increasing fertilizer capacity domestically as well as rising LPG prices with high oil prices should support earnings,” the brokerage said. .

Jefferies said one standard deviation valuations are below the seven-year average PE ratio, making the risk-reward ratio favourable. The stock also offers a 7% dividend yield, the brokerage said.

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