GAIL India shares plummet 10%; CLSA downgrades stock to underperform

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GAIL India dropped a little over 10 percent in intraday trade on June 6 after media reports stated that the Petroleum and Natural Gas Regulatory Board of India has hiked lower than expected tariff for the company’s Hazira-Vijaipur-Jagdishpur pipeline on June 4.

Further, the dismal hike forced brokerage firm CLSA to downgrade its rating on the stock to “underperform” from “buy” earlier and slashed its target price to Rs 365 from Rs 420 earlier.

CLSA in a note said that it was a disappointing tariff revision for HVJ pipeline tariff compared to the expectation of 15 percent. The global investment bank slashed EPS estimates by 4-7 percent.

Lack of EPS growth limits reasons to be positive on the stock, it said in a note. Falling crude and weak spot LNG price could be near-term concerns, said the note.

CLSA further added that every $1/bbl Brent change moves our EPS estimate by 0.6 percent. It used Brent at $72/bbl compared to the spot rate of $60/bbl in calculations.

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