15 May 08 GAIL India seems to be a Good Buy

GAIL India announced its financial results last week and the results have surprised the market. The market was bearish on GAIL’s performance since it anticipated a fall in margins of its LPG transmission business. However, GAIL’s net profit rose by over 6% quarter on quarter to Rs. 720.5 crores. At the current market price GAIL trades at 11.5 times estimated financial year 2009 earnings. The forward PE of 11.5 is extremely attractive. However, the government regulations are a bit of a concern. GAIL has been asked to share a part of the subsidy burden faced by oil marketing companies like HPCL, BPCL and IOC. The exact amount of subsidy burden that GAIL is expected to share is not clear at the moment. This subsidy burden might adversely affect GAIL’s FY09 estimated earnings.

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