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Merrill Lynch has maintained neutral rating on GAIL.

Tuesday, July 31, 2007

The earnings forecast implies 8% YoY earnings growth.

1Q earnings rise by 16% YoY; retain Neutral

GAIL’s 1Q FY08 earnings increased by 16% YoY driven by a sharp rise in petrochemical and LPG EBITDA. Gas transmission EBITDA declined. We have kept our forecast of 8% YoY growth in FY08E earnings unchanged. We have our concerns on the growth prospects in gas transmission and profitability in the petrochemicals and LPG businesses. Its E&P foray may, however, prove to be rewarding. We remain Neutral on GAIL.

Strong petrochemical & LPG growth; 1Q 5% higher than Mle

GAIL’s 1Q FY08E earnings growth was driven by 60% YoY rise in petrochemical EBITDA and 17% YoY rise in LPG EBITDA. Petrochemical EBITDA rise was driven by 30% YoY rise in sales volumes and 8% YoY rise in Indian polyethylene prices. LPG EBITDA growth was driven by 12% YoY rise in LPG price realization. 1Q earnings were 5% higher than our estimate. The main positive surprise was stronger than expected growth in petrochemical and LPG EBITDA.

Gas transmission business disappoints once again

GAIL’s main gas transmission business disappointed once again, with EBITDA declining by 22% YoY. While gas transmission volumes were flat, the EBITDA per unit of gas transported declined by 21% to Rs 545/tcm (USD 0.37/mmbtu).

FY08E earnings kept unchanged -8% growth

We keep our FY08E earnings forecast of Rs 26.2 per share unchanged. Our earnings forecast implies 8% YoY earnings growth. GAIL’s 1Q results were boosted by strong growth in LPG and petrochemical profitability. This growth may not be sustained in the rest of FY08E. Petrochemical expansion is likely to be commissioned in 2Q but will not be as profitable as the existing capacity as it will be based on spot LNG imports.


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Investment in equity shares has its own risks. Sincere efforts have been made to present the right investment perspective.The information contained herein is based on analysis and up on sources that we consider reliable. I, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and I am not responsible for any loss incurred based upon it.& take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations given in this blog.