GAIL stock may give 40% price appreciation in next six quarters

There is definitely a certain appeal which exists in an ideal balanced approach amplifying the relevance of purchasing good mid cap stocks. These middle of the lane enterprises deliver a mix of proven stability and excellent growth opportunities. Looking at the wide basket of the Indian economy, there are many fundamental mid cap companies which command attention among smart and savvy fund managers and stock pickers. With Central banks around the world committed to attacking soaring inflation by raising the benchmark interest rates, recession risks have risen in developed Western countries. With higher borrowing costs there are many mid cap companies which are compelling buys and offer significant upside in the stock market. When there is a tight liquidity supply environment, pure growth centric small cap companies offer too much risk. But on the other hand large cap companies offer low and stable returns, which is not what the higher return seeking investor wants. Hence, midcap company stocks offer best of both worlds. Among the vast mid cap universe of stocks, analysts and brokers are quite bullish on the PSU basket. GAIL India seems a decent bet for the moment and a top pick among many fund managers. The company is India’s leading natural gas company with diversified interests across the natural gas value chain of trading, transmission, LPG production & transmission, LNG re-gasification, petrochemicals, city gas, E&P, etc. It owns and operates a network of around 14617 km of natural gas pipelines spread across the length and breadth of country. It is also working currently on execution of multiple pipeline projects to further enhance its spread. The company commands over 70% market share in gas transmission and has a Gas trading share of over 50% in India. GAIL through its various subsidiaries and joint ventures has a formidable market share in City Gas Distribution and Liquefied Natural Gas segment. It is also expanding its presence in renewable energy like Solar, Wind and Biofuel. The company was incorporated in August 1984 as a Central Public Sector Undertaking (PSU) under the Ministry of Petroleum & Natural Gas. The company was initially given the responsibility of construction, operation & maintenance of the Hazira-Vijaypur-Jagdishpur pipeline project as one of the largest natural gas pipeline project in the world. GAIL has an infrastructure of 123 CNG stations and 2.27 lakh DPNG connections during the current financial year and has a target to add around 100 new CNG stations along with 2.50 lakh new DPNG connections in the next few years. The company reported dismal set of Q2FY 23 financial numbers with gross turnover at Rs 38,440 crores as against Rs 37,536 crore for the same quarter of last fiscal. Though the increase was a marginal 2% due to higher natural gas prices, the increase could have been more but was offset by decrease in LHC prices. Profit before tax for Q2 FY23 decreased sharply to Rs 1,876 crore as against Rs 3,894 crore. The big hit in profit before tax by nearly 52% was mainly due to decrease in gas market spreads, lower petrochemical and LHC price realisation and increase in fuel expenses in the natural gas transmission. Profit after tax also dropped by 47% from Rs 2915 crore to Rs 1537 crore. Brokers expect the GAIL stock to hover around present levels of Rs 96 for some time and hence becomes a compelling portfolio investment bet. This is the time to accumulate the GAIL stock as it is a bargain buy with a 18 months’ time perspective. Analysts expect the GAIL stock to easily deliver a 40% price appreciation in the next six quarters.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.