Why Brokerages Are Mixed On GAIL's ₹60,000 Cr Project

Shares of GAIL India fell on Tuesday after the company said it is planning to set up a ₹60,000 crore project.

What Happened: GAIL is planning to set up a 1500 kilotons per annum ethane cracker project in Madhya Pradesh to produce various ethylene derivatives, the company said in its regulatory filing. The company has submitted its request to the Madhya Pradesh government to provide suitable enablers for the project.

MP Industrial Development Corporation will provide around 800 hectares of land for the company and the company will seek investment approval from the board after getting a favourable outcome on enablers.

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Analyst Views: JP Morgan has a "neutral" call on the company with a target price of ₹184. Analysts at the brokerage said it’s too early to worry about cash flow risks from the proposed project. 

The project is four times EBITDA/operating cash flow of FY24 and has little returns on current spreads, they said. If the project is confirmed, it could be an over hang on the stock and its current valuations leave little upside, the brokerage said. 

Morgan Stanley retained a "buy" call on the company with a target price of ₹250. Brokerage reasoned the company is diversifying its feedstock. According to the brokerage, the ₹60,000 crore project might start in FY31.

Price Action: GAIL shares were down 0.40% on Tuesday morning at ₹207.35.

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