INSUBCONTINENT EXCLUSIVE:
Mumbai: Shares of GAIL, currently trading at a 38 per cent discount to its long-term price-to-earnings average, could give a good return in
2020 if it gets relief from Rs 1.7 lakh crore of payment related to adjusted gross revenue (AGR) demanded by the department of
telecommunications (DoT), analysts said.
The state-run natural gas marketer would be the biggest beneficiary of the increasing domestic gas
and LNG production in the country, they said
But the stock has declined 17 per cent in the past one year, mainly due to concerns over possible restructuring of business segments,
lower-than-expected results and the recent AGR-related demand.
DoT has raised the demand after the Supreme Court expanded the definition of
AGR, based on which telecom licence holders need to pay their licence fee to the government
The AGR now includes revenue from businesses unrelated to telecom as well, and that is a concern for non-telecom companies such as GAIL and
Power Grid Corp that hold the licences.
“The current weakness in the GAIL stock seems to be a reaction to DoT-AGR issues and we believe
the AGR demand is not tenable,” Emkay Global analyst Sabri Hazarika said
“The stock trades at an attractive valuation and we reiterate our ‘buy’ rating with a target price of Rs 160.”
At current market
price — it closed at Rs 125.7 on the BSE Friday — the stock trades at six times its FY21estimated Ebitda, which is at a 19 per cent
discount to the five-year average of 7.4x
On price-to-earnings terms, it is currently trading at a one-year forward PE of 8.7 times, which is a 38 per cent discount to its 10-year
The company has maintained a strong dividend payout of 35 per cent in FY19, yielding 3.2 per cent per share.
“We believe that GAIL would
be a key beneficiary of the increasing domestic gas and LNG production in the country,” said Siddhartha Khemka, the head of research at
Motilal Oswal Financial Services
“Tightening norms on industrial pollution should also help the transmission segment in the longer run.”
“Failure to seek relief from
payment related to AGR demanded by DoT can adversely impact financials,” he added.
Analysts expect an Ebidta CAGR of 14 per cent over
FY2020-22, with FY22 EV/Ebitda of 5.4x
The transmission segment should remain a major contributor to Ebidta, with volumes growing to 135 million standard cubic meters per day in
