On Friday, Citi updated its outlook on Gail (India) Ltd. (GAIL:IN) (OTC: GAILF), increasing the price target to INR290 from the previous INR260, while reiterating a Buy rating on the stock. The firm's analysis suggests a favorable view of the company's growth prospects and potential for value creation.
The optimism surrounding Gail (India) is based on several key factors. Citi forecasts a healthy volume compound annual growth rate (CAGR) of 7-8% over the next three years, a notable increase from the 2% CAGR observed over the past five years. This growth expectation could see further upside if natural gas is included under India's Goods and Services Tax (GST).
Additionally, Citi anticipates potential tariff increases for Gail (India), which could positively impact the company's financials. The firm believes that higher tariffs are likely to occur and may exceed current expectations in terms of their extent.
Another aspect contributing to the positive outlook is the potential for Gail (India) to unlock value through the restructuring of its city gas distribution (CGD) investments. This restructuring is seen as a possible catalyst for enhancing shareholder value.
The consistent performance of Gail (India)'s gas trading segment is also highlighted, although opinions on how to accurately value this part of the business vary across the market. Despite differing views, Citi notes that the trading performance has been stable.
Citi has placed an open Positive Catalyst Watch on Gail (India), indicating that the firm is on the lookout for events or developments that could provide further positive momentum for the stock. This watch suggests that investors should be attentive to upcoming news or changes that may influence the company's market performance.
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