Hold Gail India; target of Rs 400: Axis Direct

Axis Direct's research report on Gail India

We buildin (a) higher employee costs as the 3rdPay Revision Committee report will increase GAIL’s employee costs by Rs 4 bn (vs. FY17 staff cost of Rs 12.5 bn), and (b) delay in tariff notification beyond Sep ’17, hence tariff hike of 8% available only in FY19.At CMP, the stock trades at 13x FY19E EPS of Rs 29 (Rs 31 earlier).

Outlook

Higher oil price will benefit GAIL as its US LNG contracts will become competitive to oil-linked gas contracts at Brent price of USD 63/bl. Profitability of GAIL’s petchem, LPG and Liquid Hydrocarbon segments will also get propped. We roll over to FY19 with TP of Rs400 (Rs 379 earlier).