GAIL (India) Limited (NSEI:GAIL), a ₹768.27B large-cap, is a utility company operating in an industry whose performance is becoming more and more driven by the businesses’ ability to address emerging problems such as cybersecurity threats, increasing usage by consumers and growing number of innovative competitors. Utilities analysts are forecasting for the entire industry, a strong double-digit growth of 28.73% in the upcoming year , and a massive growth of 51.03% over the next couple of years. This rate is larger than the growth rate of the Indian stock market as a whole. Should your portfolio be overweight in the utilities sector at the moment? Below, I will examine the sector growth prospects, as well as evaluate whether GAIL (India) is lagging or leading its competitors in the industry. See our latest analysis for GAIL (India)
What’s the catalyst for GAIL (India)’s sector growth?
Moving forward, key issues facing utility companies include climate change and environmental concerns, and new entrants and disruptive technology. In the past year, the industry delivered growth in the teens, beating the Indian market growth of 14.46%. GAIL (India) leads the pack with its impressive earnings growth of 80.19% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with GAIL (India) poised to deliver a 43.69% growth over the next couple of years compared to the industry’s 28.73%. This growth may make GAIL (India) a more expensive stock relative to its peers.
Is GAIL (India) and the sector relatively cheap?
Gas utility companies are typically trading at a PE of 22.81x, in-line with the Indian stock market PE of 25.3x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 13.26% compared to the market’s 9.65%, potentially illustrative of past tailwinds. On the stock-level, GAIL (India) is trading at a PE ratio of 22.81x, which is relatively in-line with the average gas utilities stock. In terms of returns, GAIL (India) generated 8.58% in the past year, which is 4.68% below the utilities sector.
Next Steps:GAIL (India)’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this high growth prospect is most likely factored into the share price, given the stock is trading in-line with its peers. If GAIL (India) has been on your watchlist for a while, now may be the time to enter into the stock. If you like its growth prospects, you’ll be paying a fair value for the company. However, if you’re hoping to gain from an undervalued mispricing, this is probably not the best time. However, before you make a decision on the stock, I suggest you look at GAIL (India)’s fundamentals in order to build a holistic investment thesis.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Historical Track Record: What has GAIL’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of GAIL (India)? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!