IIFL Institutional Equities, a part of the IIFL Group, one of the leading players in the Indian financial services space, recommends ‘Reduce’ on GAIL.
IIFL said, “We have upgraded our Eps estimate for FY12ii by 9% on lower anticipated under-recovery burden on GAIL. Concerns around gas volume growth and regulatory overhang on marketing margins in the gas transmission business”.
The Company’s Ebitda of Rs18bn, ahead of our estimate on lower-than-anticipated under-recovery burden in its LPG manufacturing business and capitalisation of exchange loss on forex debt to its balance sheet instead of expensing it in the P&L (Rs1.05bn), said the brokerage.
According to report, GAIL’s transmission volume in the gas business was flat QoQ despite a 4mmscmd fall in KG-D6 production QoQ as the company handled spot cargos. Transmission volume was 1% lower YoY. Gas trading volume grew 1% QoQ and 2% YoY.
While, in the non-gas businesses, petrochemicals Ebitda declined only 4% in a seasonally weak quarter. GAIL’s under-recovery burden reduced 5% QoQ even as industry under-recoveries increased 44% QoQ.
The Eps estimate for FY12ii has been further upgraded by 9% on lower anticipated under-recovery burden on GAIL. The Dabhol terminal will be commissioned in March (a 2-month delay), report said.
Concerns around gas volume growth and regulatory overhang on marketing margins in the gas transmission business, added IIFL.
The report was published by IIFL’s Institutional Equities Research desk.