Maintain 'buy' on GAIL India – TP reduced to Rs.372 - Geojit BNP Paribas

- Buy rating on GAIL India is maintained with a lowered target price of Rs.372 over one year. Earlier price was Rs.432.

- Delhi High Court order on Indraprastha Gas (IGL) issue ruled that PNGRB does not have the jurisdiction to regulate gas prices, enabling IGL to charge existing compression and networking charges. It seems that the ripple effect of this verdict will benefit GAIL as well, as the overhang regarding marketing margins will be eliminated now.

- Focus is likely to come back now to the cash-flow driven nature of GAIL.

- Further decline in the KG-D6 volume and potential slower ramp-up in ONGC fields may reduce the transmission volume of GAIL marginally in FY13 to 118 mmscmd as against management guidance of 121 mmscmd.

- EBITDA for gas trading also is expected to come down marginally to an average of USD 0.15/ mmbtu. This decline is to account for lower marketing margins on LNG spot cargoes.

- Accounting for minor tariff cut in gas and LPG transmission business and lower margins for the trading business, target price has been reduced to Rs.372 from the earlier target price of Rs.432.

Source : Equity Bulls

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