Buy GAIL India; target of Rs 459: KRChoksey

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Buy GAIL India; target of Rs 459: KRChoksey

KRChoksey is bullish on GAIL India and has recommended buy rating on the stock with a target of Rs 459 in its January 27, 2012 research report.

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KRChoksey is bullish on GAIL India and has recommended buy rating on the stock with a target of Rs 459 in its January 27, 2012 research report.

"GAIL reported a 13% growth in net profit to Rs 1092 cr against Rs 968 cr on yo- y basis. The increase in net profit during Q3FY12 was driven by improved gas trading EBIT by 12.5% on Q-o-Q basis to Rs 324 cr. and lower provision of fuel subsidy for Q3FY12, GAIL reported a growth of 35% in net sales on Y-o-Y basis. Total net sales was Rs 11294 cr against Rs 8384 cr. The increase in revenue is mainly due to higher sales from petrochemical and strong performance of LPG & Liquid hydrocarbons. Overall operating margins are under pressure due to lower gas transmission through pipelines. GAIL has shared Rs 536.6 cr towards LPG subsidy in the 3rd quarter of the current financial year as compared to Rs 417.8 cr during the corresponding previous year quarter."

"Natural Gas (NG) transmission volume was 119mmscmd, however transmission EBIT was up 9% QoQ due to reversal of FX provision by Rs 55 cr and higher tariff realisation on DVPL-II. More than 25% drop in gas production from KG-D6 filed (41mmscmd in Q3FY12 against 55mmscmd in Q3FY11) was the main cause of drop in NG transmission volume of GAIL over previous quarter. In Q3FY12 the company imported 5 LNG cargo during quarter, going forward number of import of LNG cargo's will increase as dabhol terminal will operational in March-12. The management has guided 2MMT of RLNG import is expected for FY13. GAIL is already in discussion for 17mmt (61mmcmd) of LNG contracts with various suppliers. ONGC is developing various marginal fields over western coast, Daman offshore (Gas addition of 15+ mmscmd ). 1680km TAPI (Turkmenistan-Afghanistan-Pakistan- India) pipeline signed which will supply 38mmscmd of gas to India by FY14-15. GAIL will be the major beneficiary of growing gas market in India."

"GAIL quoted that it is earning just USD0.17-0.2/mmbtu on imported LNG On marketing margins front, GAIL explained that marketing margins are based on two things: one is for the administered price mechanism (APM) produced gas and other is for the imported gas. Imported gas is market driven and government doesn't have any interference in the imported gas. For APM gas, ministry by way of gas orders had introduced INR200/mcm in June 2010. That's why whatever will come will be on the APM gas. GAIL has a diversified business; hence we have valued it on SoTP basis and arrived at a valuation of Rs 459/share of which Rs 278/share is contributed by core business of transmission & natural gas trading and cyclical business at Rs 86/share. We value investments at Rs 80/share and Myanmar E&P block at Rs 15/share. At CMP of Rs 374 the stock is trading at 11.3 and 9.9x of FY12E & FY13E. We recommend a Buy on the stock with a Price Objective (PO) of Rs 459 (intrinsic value) representing a potential upside of 22% over a period of 12 months," says KRChoksey research report.  

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