Gail Sell

GAIL India Reco price: Rs 260 Current market price: Rs 268 Target price: Rs 255 Upside: NA Brokerage: Religare Hichens, Harrison GAIL India’s management indicated that at least two-thirds of the KG-basin gas would flow through its network--the brokerage anticipates gas flow of over 80 per cent. However, GAIL is seeking clarity on marketing margins for KG gas. GAIL currently has 7,000 km (150 mmscm) of pipeline capacity and is adding another 5,500 km (150 mmscm) in two phases by FY12. The company has charted out a capex of around Rs 20,000 crore during the 11th five-year plan, of which, close to 80 per cent is expected to be incurred towards the pipeline business. GAIL does not expect its transmission tariff to reduce, even if PNGRB (the regulator) imposes a ROCE-based rate. It expects gas transmission volumes to be revised downwards for FY10 and also raised petrochemical price assumption from Rs 42 to Rs 55 per kg and a shift in rupee depreciation assumption from Rs 46 to a dollar to Rs 48.5. Driven by change in estimates and altered WACC assumptions, the target price is revised upwards from Rs 216. Maintain ‘hold’. Smart Investor BS 13-04-09