Shares of GAIL India witnessed a substantial uptick on November 6, surging over 6% following the release of its robust second-quarter earnings report for FY25. By 11 am, the stock had risen 6.24%, trading at Rs 208.65 on the Bombay Stock Exchange (BSE). This sharp increase in the stock price comes as a welcome sign for investors after the stock had experienced a significant decline in the prior month. The positive performance is attributed to GAIL’s strong financial results and analysts' optimistic projections for its growth potential, signaling a recovery for the stock.
Several analysts have weighed in on GAIL’s impressive quarterly performance, including major brokerage firms like Morgan Stanley and Jefferies, both of which have reiterated positive outlooks for the company’s future growth and re-rating potential. Their analyses focus on key business drivers and the strategic moves GAIL is making to strengthen its position in India’s energy and infrastructure sectors.
Morgan Stanley, for instance, has maintained an ‘Overweight’ rating on GAIL, setting a target price of Rs 258 per share. This is largely due to GAIL’s 19% return on equity (RoE) in its gas pipeline business, which continues to perform strongly. The brokerage highlighted the ongoing growth in volumes and the increasing penetration of natural gas across India as pivotal factors in GAIL's positive outlook. Furthermore, Morgan Stanley pegged the company’s valuation at 1.2 times its estimated price-to-book ratio for FY26, reinforcing the belief that GAIL’s stock remains a strong contender in the energy sector.
Jefferies, on the other hand, upgraded its rating for GAIL to ‘Buy’, with a target price of Rs 240 per share. While the company posted a 7% year-on-year growth in EBITDA, slightly below market expectations, Jefferies pointed out that GAIL’s gas trading and petrochemical segments showed improved results. The brokerage also noted the company’s expanding market share, attributed to the development of new pipeline infrastructure that is expected to significantly increase its capacity by mid-2025. This expansion is expected to drive further growth for GAIL in the coming quarters. In addition, Jefferies forecasts a 9% compound annual growth rate (CAGR) in EBITDA from FY24 to FY27, driven by favorable global gas prices, particularly from the Henry Hub gas market. The 20% correction from the stock's recent peak is seen by Jefferies as an attractive entry point for long-term investors looking to capitalize on GAIL's future growth trajectory.
For Q2 FY25, GAIL posted a 10% increase in consolidated net profit, amounting to Rs 2,690 crore. Revenue from operations saw a marginal rise to Rs 33,981 crore. The company’s natural gas transmission segment, a key pillar of GAIL’s business, posted an EBITDA of Rs 1,402 crore, a notable increase from Rs 1,294 crore in the same quarter last year. Additionally, GAIL’s petrochemical division demonstrated a strong turnaround, reporting an EBIT of Rs 146 crore, compared to a loss of Rs 161 crore during the same period in FY24. This recovery in the petrochemical segment is particularly significant as it highlights GAIL’s ability to bounce back from earlier setbacks and return to profitability in a challenging environment.
However, GAIL’s natural gas marketing segment saw a dip in earnings before interest and tax (EBIT), which fell to Rs 1,254 crore from Rs 1,722 crore in Q2 FY24. Despite this, GAIL’s CMD, Sandeep Kumar Gupta, remained confident in the company’s future prospects. He noted that the petrochemical segment is on track for sustained profitability in FY25, which is expected to support GAIL's broader earnings growth going forward.
During the quarter, GAIL also incurred capital expenditure of Rs 1,885 crore, primarily directed towards expanding its pipeline infrastructure and supporting its petrochemical projects. This brings the company’s cumulative capex for the first half of FY25 to Rs 3,544 crore. This level of investment highlights GAIL’s commitment to enhancing its capacity and ensuring long-term growth, particularly as India continues to expand its natural gas network.
In terms of stock performance, GAIL shares closed at Rs 196.80 on the NSE in the previous session, reflecting a 25% gain for the year to date. This outperformance stands in stark contrast to the Nifty’s 10% returns over the same period. Furthermore, GAIL’s shares have seen a remarkable 69% rise over the last 12 months, significantly outperforming the Nifty, which posted a more modest 23% increase. This surge in the stock price underscores investor confidence in the company’s prospects, despite fluctuations in the broader market.
Looking ahead, GAIL’s strong financial performance, combined with its strategic investments and expanding market share, positions it well for continued growth. As the company continues to tap into the growing demand for natural gas across India and strengthens its infrastructure, it is likely to remain a key player in the energy sector. Analysts believe that GAIL’s ongoing investments in pipeline expansion and the petrochemical business will continue to yield strong returns, driving further growth in the coming quarters. The company’s solid earnings, coupled with its ability to manage volatility in the energy market, make it an attractive option for long-term investors seeking exposure to India’s growing energy infrastructure market.
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