BNP Paribas puts ‘reduce’ on GAIL India
BNP Paribas has initiated coverage on GAIL India with a ‘reduce’ rating, as it expects gas transmission prices to fall thereby affecting the company’s core business segments.
By ET Bureau |
CMP: Rs 212.45
Target price: Rs 176
BNP Paribas has initiated coverage on GAIL India with a ���reduce��� rating, as it expects gas transmission prices to fall thereby affecting the company���s core business segments.
���We initiate research coverage on GAIL India with reduce rating to factor in a steep decline in profitability of GAIL���s petrochemicals, LPG and liquid hydrocarbons (LPG/LHC) segments in the wake of a cyclical downturn,��� says a brokerage report. These business segments together accounted for 51.8% of GAIL���s FY08 EBITDA, adds the report. BNP Paribas expects EBITDA of petrochemicals and LPG/LHC segments to decline by 50.5% and 10.7%, respectively, in FY08-10.
The bearish outlook is also based on the fact that the Petroleum and Natural Gas Regulatory Board (PNGRB) has proposed to use the depreciated asset value of GAIL���s existing pipelines to determine tariffs. Gas transmission tariffs will likely fall on new regulation, notes the report. The brokerage also feels that RIL���s ongoing legal dispute over the supply and pricing of gas could delay the onset of gas supplies beyond its estimate of April 2009.
Target price: Rs 176
BNP Paribas has initiated coverage on GAIL India with a ���reduce��� rating, as it expects gas transmission prices to fall thereby affecting the company���s core business segments.
���We initiate research coverage on GAIL India with reduce rating to factor in a steep decline in profitability of GAIL���s petrochemicals, LPG and liquid hydrocarbons (LPG/LHC) segments in the wake of a cyclical downturn,��� says a brokerage report. These business segments together accounted for 51.8% of GAIL���s FY08 EBITDA, adds the report. BNP Paribas expects EBITDA of petrochemicals and LPG/LHC segments to decline by 50.5% and 10.7%, respectively, in FY08-10.
The bearish outlook is also based on the fact that the Petroleum and Natural Gas Regulatory Board (PNGRB) has proposed to use the depreciated asset value of GAIL���s existing pipelines to determine tariffs. Gas transmission tariffs will likely fall on new regulation, notes the report. The brokerage also feels that RIL���s ongoing legal dispute over the supply and pricing of gas could delay the onset of gas supplies beyond its estimate of April 2009.
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