Stock Views on PUNJ LLOYD, NMDC, GAIL

CREDIT SUISSE on GAIL

Credit Suisse maintains `outperform' rating on GAIL with a target price of 527. GAIL reported Q1FY11 EPS of 7, down 2.6% q-o-q. Revenue was up 9%, but higher costs meant EBITDA was up only 2.5%. Gas transmission tariffs returned to Q3FY10 levels. Though GAIL took a one-time revenue reversal on the provisional PNGRB (Petroleum and Natural Gas Regulatory Board) tariff cut, it does not seem to be applying the new tariffs on run rate. Transmission EBITDA was up 26% q-o-q. Petchem sales volumes disappointed and were significantly below production. Volatility in prices can prompt buyers to defer purchases and GAIL to build inventory, which can unwind as prices rise. The LPG segment was hit by higher subsidies, but these should fall beginning Q2, as the impact of the price hikes kicks in. GAIL has also been allowed to charge marketing margins on APM gas. The risk is GAIL may have to reverse more revenue, as tariffs are finalised. Credit Suisse builds in some of these upsides, and cuts the FY12E volumes. FY11E EPS increases 9% to 29.

UBS on NMDC

UBS maintains `Sell' rating on NMDC with a price target of 210. NMDC's Q1FY11 PAT of 1,500 crore was marginally lower than the estimate of 1,580 crore mainly due to lower revenue. This was partly offset by higher than estimated EBITDA margins. Revenue increased 97% y-o-y to 2,520 crore due to 20% increase in volumes. EBITDA margin improved to 81% from 76% in Q4FY11 largely due to: 1) 36% q-o-q increase in average net realisation 2) lower other expenses, primarily royalty costs. Total operating cost was 470 crore lower than the estimate of 670 crore, primarily because of lower other expenses. Royalty cost per tonne was 242 in Q1FY11. NMDC has raised prices by 22%/14% q-o-q for export/domestic customers for Q2FY11. NMDC now follows quarterly pricing and will pass on 2/3rd of the export price increase to domestic customers. UBS continues to value iron ore business using NPV (net present value) and steel business on book value of investments as at FY11E and remains cautious due to expensive valuations

CITIGROUP on PUNJ LLOYD

Citigroup maintains `Sell' rating on Punj Lloyd. Punj Lloyd reported Q1FY11 PAT loss of 30.6 crore, significantly below the estimate of 43.9 crore profit. PAT loss was driven by sharp decline in revenues. Q1FY11 revenue at 1,610 crore declined 46% y-o-y and was 36% below CIRA estimate of 2,500 crore. Continuing execution delays and operating leverage led to EBITDA margins falling to 0.4% in Q1FY11 from 9.7% in Q1FY10. Auditor qualification on profit of 119 crore on sale of investment has been removed in the quarter, but other auditor qualifications on 243 crore of project claims and 65.5 crore of liquidated damages related to the ONGC project continue. Work has started on civil projects in Libya, and the company expects to book revenue from Q2FY11. ONGC's Heera project has been completed, and all four offshore rigs are fully operational now. Punj Lloyd continues to face execution delays, cost overruns in projects and auditor qualifications. 38% order backlog consists of delayed Libyan orders where execution is slow.