On Tuesday, CLSA adjusted its outlook on Gail (India) Ltd., raising the price target to INR170 from INR165, while maintaining a sell rating on the stock. The revision follows Gail's fourth-quarter financial performance, which presented mixed results.
The company's earnings before interest, taxes, depreciation, and amortization (Ebitda) for the fourth fiscal quarter of 2024 were slightly below CLSA's projections. However, the profit after tax (PAT) fell short of expectations by a more significant margin of 17%, primarily due to higher-than-anticipated depreciation stemming from the capitalization of new pipelines and a one-time reduction in the residual value of pipeline assets.
The report indicated that the most substantial deviation from the estimates was in the gas transmission segment, along with gas trading. Conversely, the petrochemical (petchem) division of Gail performed better than anticipated. Looking forward, Gail's management has expressed a positive outlook for the fiscal year 2025, particularly for the petrochemicals business. They anticipate a reasonable profit as they expect to operate at full capacity throughout the year.
In light of these recent financial disclosures, CLSA has revised its earnings per share (EPS) estimates for Gail upward by 3-5%. Despite the increase in the price target and EPS estimates, CLSA reiterated its sell recommendation on the stock. The firm suggests that there might be a potential downside of 19% for Gail's shares, indicating that the current market price may be overvalued relative to CLSA's assessment of the company's financial outlook and operational performance.
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