Motilal Oswal neutral on GAIL India

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Motilal Oswal neutral on GAIL India

Motilal Oswal has maintained neutral rating on GAIL India with a target of Rs 418, in its January 24, 2012 research report.

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Motilal Oswal has maintained neutral rating on GAIL India with a target of Rs 418, in its January 24, 2012 research report.

"GAIL is a major gas transmission, processing, distribution and marketing company in India, with interests in gas distribution, petrochemicals, LPG, and telecom. It owns ~8,500km of natural gas pipelines, two LPG transmission pipelines of 1900km, 500KTA petchem capacity, ~1.4mt LPG/other hydrocarbons capacity and over 13,000km of optical fiber cable network. GAIL is also involved in city gas distribution, E&P and power businesses through its joint ventures."

"Transmission business growth promise (>60% of its EBIT), though remain strong in the long term, concerns have emerged in the medium term as RIL's KG-D6 ramp-up has been halted. We currently model 3.8% CAGR volume growth through FY13 led by incremental LNG volumes, however downside risk remains to our FY12 and FY13 estimates. We believe that the GAIL's profitability ratios would be under pressure for the next 2-3 years due to underutilization of new pipelines. Earnings would be depressed due to non-commensurate increase in revenues and increase in interest and depreciation. GAIL operates a CGD network in several key cities via 12 JVs and plans to add 130 cities over 6-7years. It has stake in 27 E&P blocks in India and overseas and has encountered hydrocarbon finds in five of its blocks." Our SOTP-based target price is INR418/sh. Adjusted for investments, the stock trades at 9x FY13E EPS of INR31. Maintain Neutral," says Motilal Oswal research report.   

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