Maintain 'BUY' on GAIL – TP Rs.372 - Geojit BNP Paribas

- GAIL's operating EBITDA of Rs.1400 crores was lower than estimates; mainly on account of a one-off retrospective charge of Rs.120 crores in the LPG transmission segment and weak LPG margins (subsidy at Rs.790 crores).

- However, higher other income masked the weak operating performance. Other income came in much higher at Rs.270 crores which included unallocated income of Rs.130 crores, while the tax rate was also lower at 28.3%.

- Transmission segment EBIT came in higher on account of 'take or pay' contracts (higher implied tariff). However, this is not considered as a positive as the contract nature (resultant tariff) remains unclear. More clarity is awaited from the management on its long term transmission outlook.

- A take-or-pay contract is a contract between companies and their suppliers. With this kind of contract, the company either takes the product from the supplier or pays the supplier a penalty for the products not taken.

- Gas trading segment declined sharply on lower trading margins & marketing volumes and the Petro-chemical segment came in lower on account of lower off-take.

- GAIL is expected to be a key beneficiary of the potential increase in gas supply primarily from LNG and also from ONGC's domestic fields and as such we have a positive view on the stock in the long-term.

- Near-term, shares are expected to be range-bound until more clarity is forthcoming on incremental LNG volumes.

- Risks to the positive view: High subsidies, Lower gas volumes.

Source : Equity Bulls

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