Domestic brokerage and research firm IIFL said they like the overall disclosures of GAIL (India) Ltd in its FY 2012 AR, which give a good perspective on the financial performance, growth opportunities and risks for each of its businesses. The Capex Heavy Strategy 2030 envisages investments in core (transmission) and non-core (commodity) businesses.
“While supporting its cash flow and balance sheet can 75 bn-90 bn per capex by 2025, we remain concerned on the one-time return ratio through FY20, and the sub-par growth trajectory – for which the stock may trade below its SOTP – prime for the re-rate The trigger includes consolidation of tariffs for pipelines,” the note said.
The buy rating of the brokerage house is GAIL SHARE with a target price of 12 months 160 per. Government-owned GAIL is a natural gas explorer and producer engaged in the processing and distribution of natural gas in India.
“GAIL has a healthy balance sheet with the lowest D/E ratio among its O&G peers. It has a mix of commodity and regulated businesses, which has helped generate strong cash flows, which it has reinvested in the core business, and also increased pay-outs to investors in the form of buybacks and dividends. However, its return ratio has been uncertain due to the impact of commodity businesses in total Ebitda (12- 50% share over the years),” it added.
While GAIL’s core business has grown at a steady 8% p.a. over the years, the reported PAT has been uncertain – mainly due to the LNG business and polymer businesses, which account for 45% of its total EBITDA.
“It has also had a major impact on the return ratio,” he said. OCF, regardless, has been capex over the years; like 404bn cumulative OCF (FY18-22) has been used to finance capital expenditure (65%), dividends etc.; In FY21/22, a significant increase in effective payout to shareholders has been observed,” it said.
Gayle Hold 63 billion investment in other PSUs having market value 93 billion; This may be liquidated and returned to the shareholders to enhance ROE and value, added IIFL’s note.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
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