Buy Gail India - Motilal Oswal

GAIL (India) (GAIL IN; Mkt Cap USD13.3b, CMP Rs478, Buy)

GAIL India's 3QFY11 EBITDA is up 4% YoY and down 8% QoQ at Rs13b, led by lower profits in transmission and petrochemical businesses.

Reported PAT is in-line at Rs9.7b due to (1) higher than expected other income (due to special dividend by ONGC), and (2) lower than expected depreciation.

Lower than expected transmission EBIT is primarily due to lower average tariffs. Lower petchem profits are due to higher imports in India.

Other income included special dividend income of Rs1.7b from ONGC. Since this is tax deducted, overall tax rate in 3QFY11 stood at 28% vs estimate of 33%.

Motilal Oswal has rolled over its SOTP-based target price to FY13 basis. Further, we are cutting our target PE multiple from 14x to 12x due to concerns on FY13 gas volume ramp-up. Thus, our target price is cut to Rs514 (earlier Rs527). Adjusted for investments, the stock trades at 11x FY13E EPS of Rs36.1. Maintain Buy.

Source : Equity Bulls

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