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GAIL Ltd |
Results inline with expectation; Maintain ACCUMULATE |
ACCUMULATE
CMP: Rs 477 Target Price: Rs 565
n Results were inline with estimate at revenue, EBIDTA and PAT level
n Revenue from natural gas transmission, LPG transmission and trading business increased by 17%, 11% and 50% YoY respectively
n Subsidy payout for Q3FY11 decline by 8% YoY to Rs.4.2bn (+21%QoQ), however, on full year basis, FY11E subsidy is expected to be higher at Rs.16bn as against Rs13bn in FY10
n Accumulate with TP of Rs.565, given its dominant market share in transmission business and expected volume growth. Subsidy sharing remains a key overhang on the stock
Highlights of the results
GAIL reported results which were inline with our estimates at Revenue, EBIDTA and
PAT level. Revenue for the quarter was at Rs.83.8bn (against our expectation of
Rs.84.9bn), growth of 35% YoY, mainly due to better performance from natural gas &
LPG transmission and trading business. EBITDA during the quarter was at Rs.13.3bn
(against our estimate of Rs.14.9bn), growth of 3.5%, YoY. During the quarter the
company reported net profit of Rs.9.6bn, (as against our estimate of Rs.9.3bn), growth
of 12.5% on YoY basis. Subsidy payout stood at Rs.4.2bn mainly due to higher crude oil
prices during the quarter.
Higher performance from natural gas trading and transmission segment
drives the revenue and profitability in Q3FY11
Revenue has increased by 35% from Rs.62bn in Q3FY10 to Rs.83.8bn in Q3FY11, due
to better performance from natural gas & LPG transmission and trading business.
Revenue from natural gas transmission has grown by 17% YoY to Rs.10bn, while
Natural gas trading revenue jumped 50% YoY to Rs. 67bn. Also LPG transmission
segment have shown the growth of 11% to Rs.1.2bn. However, revenue from other
segment has disappointed, especially petrochemical.
Transmission volume to increase further in Q4FY11
Natural gas transmission volume has increased by 10% YoY to 120.2mmscmd (+5%
QoQ). To meet the current demand for gas from power, fertilizer, refining and city-gas
distribution sectors, company will buy two spot LNG cargoes in Q4FY11 due to shortfall
of 5-7mmscmd from domestic source. It will buy one cargo from Qatar's Ras Laffan
Liquefied Natural Gas Co., and the other one from Japan's Marubeni Corp., taking its
total spot cargo buys for the current financial year to four. We believe transmission
volume for Q4FY11 would be around 122mmscmd.
Subsidy payout to be higher than previous year
During the quarter subsidy payout was at Rs.4.2bn, a decline of 8% YoY (+21% QoQ)
and for 9mths FY11, company paid Rs.12bn, increase of 21% YoY. We believe subsidy
burden is expected to be higher at Rs.16bn (+22% YoY) for the FY11E as against Rs.8-
9bn, guided by the management.
Outlook and Valuation
GAIL’s investments to expand its network over the next four years, will enable it to increase
gas transmission volume and thereby revenue and earnings in the long term. We have
positive bias on GAIL, given its dominant market share in transmission business, strong
track record, expected volume growth and robust business model with no commodity risk.
However, subsidy burden remains the key overhang on the stock. Currently, stock trades at
15x FY12E EPS and 2.6x FY12E P/BV, we maintain ACCUMULATE ratings on GAIL with
the target price of Rs.565
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