Jefferies retains 'underperform' on GAIL, target implies 17% downside; should investors worry?

GAIL share price today, GAIL share price target: GAIL shares continued to enjoy mild gains on Monday even as foreign brokerage Jefferies retained an 'underperform' rating on the state-run natural gas giant while maintaining its target price for the stock at Rs 150 per share. The PSU stock, already up more than 10 per cent so far in 2024, gained nearly two per cent to Rs 184.5 apiece on NSE.

At 11:26 AM, the counter traded 1.4 per cent higher at Rs 183.7 apiece, on course to finish higher following a two-day fall.

The target of Rs 150 by Jefferies implies a downside of more than 17 per cent in the stock from its current levels.

According to the brokerage, the unified natural gas tariffs notified by the Petroleum and Natural Gas Regulatory Board (PNGRB) remain unchanged, and the new tariff including the newly commissioned pipelines will be notified effective June.

The risk-reward is unfavourable for the GAIL stock, according to Jefferies.

The order makes no reference to the higher gas cost of GAIL, it added.

The PNGRB regulates the refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas excluding the production of crude oil and natural gas across the country.

Meanwhile, GAIL plans to commission its first green hydrogen project in central India this month.

The 10-megawatt proton exchange membrane electrolyser for the green-hydrogen producing unit at the Vijaipur complex in Madhya Pradesh state has been imported from Canada, news agency Reuters reported last week.

The unit is expected to produce about 4.3 metric tons of hydrogen per day, with a purity of about 99.999 per cent by volume, and would use renewable power. India aims to reach 5 million tons of annual green hydrogen production capacity by 2030.

Should investors worry about GAIL shares?

Earlier, HDFC Securities maintained a 'buy' rating on GAIL with a target of Rs 185 citing the following:

-- an increase in gas transmission volume to 130 mmscmd by FY25 on the back of an increase in domestic gas production

-- the completion of  major pipelines in eastern and southern India

--the expectation of  improvement in earnings from the petrochemicals segment

In January, Zee Business analyst Varun Dubey gave a long-term buy call on GAIL with a one-year target of Rs 200 apiece. Dubey's target suggests a further 10 per cent upside in the stock.

How did GAIL perform in Q3?

GAIL staged a strong financial performance for the fiscal third quarter, driven by higher natural gas marketing margins and improvement in the petrochemicals earnings. It registered a multi-fold jump in consolidated net profit to Rs 3,193.3 crore for the October-December period on the back of easing LNG rates.

The company's quarterly revenue from operations, however, came in at Rs 34,767.8 crore as against Rs 35,940 crore a year ago.

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