Shares of Gas Authority of India Ltd (GAIL) declined up to 2.6% on Thursday, January 11, after the brokerage CLSA downgraded its rating on the state-run firm to "underperform" from "buy" earlier, citing subdued earnings per share (EPS) growth.
The downgrade indicates a less favourable outlook on the stock.
Despite raising the target price to ₹165 per share, due to roll forward, CLSA sees limited potential for rerating and anticipates subdued earnings per share growth. This suggests a cautious stance on GAIL's performance in the near term. The target price indicates an upside of 5.5% to Wednesday’s closing price of the stock at ₹155.85 apiece on BSE.
In 2023, GAIL's stock witnessed a significant 70% jump primarily due to a combination of around 50% tariff hike and approximately 12% spike in transmission volumes.
However, it is noted that these favourable factors may not be present in 2024, leading to a potential absence of similar positive surprises and affecting the stock's performance, CLSA said in its research note.
The Indian gas demand experienced a notable increase in 2023 due to a low base and certain one-off factors. Looking ahead, the forecast suggests a more moderate growth of 5%-6%.
Consequently, GAIL's earnings per share compound annual growth rate (CAGR) over the next two years is expected to be below 5%, given the uncertainty in the consensus on petrochemicals. This implies a more restrained outlook for GAIL's financial performance in the near term.
GAIL has around 70% market share in gas transmission and 50% in gas trading in India. It has a network of over 16,000 km of natural gas pipelines on a pan-India basis and is working on multiple projects to expand the network.
Earlier this month, GAIL and Vitol Asia Pte Ltd inked a long-term LNG agreement for the supply of around one million metric tonnes of LNG annually, spanning a decade, commencing in 2026. As per the terms of the contract, Vitol will distribute LNG from its worldwide portfolio to GAIL across India.
GAIL shares were trading 1.19% lower at ₹158.10 pershare at 10.50 am on Thursday, January 11.
