Maintain 'buy' on GAIL - TP Rs.372 - Geojit BNP Paribas Financial Services

- 'Buy' rating on GAIL India has been maintained with a target price of Rs.372.

- The company reported strong performance in 3QFY13 as transmission volumes at 105 mmscmd came in marginally above market estimates with stable pipeline tariffs qoq.

- Increased petrochemical sales and continued strength in marketing margins ensured 3QFY13 to beat expectations.

- The company took a Rs. 85.7 crore revision towards over allocation of subsidies for 2QFY13.

- It is expected that FY14 transmission volume to rise only marginally from current levels, due to weak initial demand at Dabhol/Kochi LNG.

- Gas trading margins should normalize at the FY12/FY13 average of USD0.21/mmbtu.

- It is expected that GAIL's share of upstream subsidy (LPG segment) to remain at 5-6%.

- Petchem performance is strong, but will depend on APM gas price.

- The recent decline in the share price was mainly because of speculation about a possible increase in administered price mechanism (APM) gas price to USD8/mmbtu from the current USD4.20/mmbtu, which would sharply increase the feedstock cost for GAIL's petrochemical business.

- The continued decline in transmission volumes also contributed to the sell-off.

- Post the correction, it seems that the transmission outlook is largely priced in and the stock is also discounting a partial impact from a potential APM gas price hike.

- The stock is unlikely to have much downside potential from the current level.

Source : Equity Bulls

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