Credit Suisse maintains `outperform’ rating on GAIL
Credit Suisse maintains `outperform’ rating on GAIL with a target price of 527.
By ET Bureau |
RESEARCH: CREDIT SUISSE
RATING: OUTPERFORM
CMP: 437.75
Credit Suisse maintains `outperform’ rating on GAIL with a target price of 527. GAIL reported Q1FY11 EPS of 7, down 2.6% q-o-q . Revenue was up 9%, but higher costs meant EBITDA was up only 2.5%. Gas transmission tariffs returned to Q3FY10 levels. Though GAIL took a one-time revenue reversal on the provisional PNGRB (Petroleum and Natural Gas Regulatory Board) tariff cut, it does not seem to be applying the new tariffs on run rate. Transmission EBITDA was up 26% q-o-q . Petchem sales volumes disappointed and were significantly below production. Volatility in prices can prompt buyers to defer purchases and GAIL to build inventory, which can unwind as prices rise. The LPG segment was hit by higher subsidies, but these should fall beginning Q2, as the impact of the price hikes kicks in. GAIL has also been allowed to charge marketing margins on APM gas. The risk is GAIL may have to reverse more revenue, as tariffs are finalised. Credit Suisse builds in some of these upsides, and cuts the FY12E volumes. FY11E EPS increases 9% to 29.
RATING: OUTPERFORM
CMP: 437.75
Credit Suisse maintains `outperform’ rating on GAIL with a target price of 527. GAIL reported Q1FY11 EPS of 7, down 2.6% q-o-q . Revenue was up 9%, but higher costs meant EBITDA was up only 2.5%. Gas transmission tariffs returned to Q3FY10 levels. Though GAIL took a one-time revenue reversal on the provisional PNGRB (Petroleum and Natural Gas Regulatory Board) tariff cut, it does not seem to be applying the new tariffs on run rate. Transmission EBITDA was up 26% q-o-q . Petchem sales volumes disappointed and were significantly below production. Volatility in prices can prompt buyers to defer purchases and GAIL to build inventory, which can unwind as prices rise. The LPG segment was hit by higher subsidies, but these should fall beginning Q2, as the impact of the price hikes kicks in. GAIL has also been allowed to charge marketing margins on APM gas. The risk is GAIL may have to reverse more revenue, as tariffs are finalised. Credit Suisse builds in some of these upsides, and cuts the FY12E volumes. FY11E EPS increases 9% to 29.
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