GAIL: Gas transmission exit rate for FY13E pegged at 115mmscmd :; Centrum

Gas transmission exit rate for FY13E pegged at
115mmscmd
GAIL reported weak performance during Q2 marred by lower gas
transmission volumes, provisioning for change in LPG transmission tariffs,
lower petchem sales and higher subsidy burden. Lower KG D6 volumes,
coupled with lower off take from power producers, led to 3.5% QoQ decline in
gas transmission volumes at 106.0mmscmd from 109.8mmscmd in Q1.
Subsidy burden jumped by 38.7% YoY and 12.2% QoQ at Rs7.9bn. Higher
other income somewhat supported profitability and hence GAIL reported
10.0% YoY and 13.1% QoQ drop in bottom line at Rs9.9bn. The management
indicated an exit rate for gas transmission volumes for FY13E at 115mmscmd
which would support performance going ahead.
Rupee depreciation, higher petchem realisations lead to higher
revenues: GAIL’s revenues jumped by 17.1% YoY and 2.5% QoQ at Rs113.9bn
owing to rupee depreciation and higher petchem realisations.
Provisioning for revision in LPG transmission tariffs impacts
performance: Revision in LPG transmission tariffs by the PNGRB regulator led
to provisioning of Rs1.2bn thus leading to dismal performance. Even natural
gas transmission volumes suffered due to the decline in KG D6 volumes and
lower off take from power producers. Nonetheless, average transmission
tariffs were better at Rs936/’000scm compared to Rs857/’000scm in Q1.
Petchem realisations and sales supported the performance which improved
sequentially by 1.6% at Rs86,634/ton from Rs85,303/ton in Q1 and
101,000tons from 66,000tons in Q1 respectively.

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Other income supports profitability: Other income for Q2 jumped by
104.1% YoY and 526.4% QoQ at Rs2.4bn owing to Rs1.0bn additional dividend
income over and above normal divided income received from investments (in
IGL, Petronet LNG, ONGC etc.). Depreciation was up 24.1% YoY and 14.8%
QoQ to Rs2.5bn due to capitalisation of pipelines during Q2. Subsidies jumped
by 38.7% YoY and 12.2% QoQ at Rs7.9bn. Higher other income along with
lower effective tax rate (28.3%) partially offset the impact from lower
transmission volumes, higher subsidies and provisioning thus leading to
10.0% YoY and 13.1% QoQ decline in bottom-line at Rs9.9bn.
Gas transmission exit rate for FY13E pegged at 115mmscmd: Although,
GAIL’s gas transmission business reported weak performance, the
management is upbeat to exit at 115mmscmd by FY13E. The incremental
volumes are likely to emanate from Dabhol LNG terminal, Kochi LNG terminal
and additional volumes from domestic sources. Dabhol terminal is expected
to be operational by December2012- Jan 2013 and so too Kochi in similar time
line. We have revised our gas transmission volumes based on H1FY13
performance and decline in KG D6 volumes. We do not foresee any significant
triggers for the stock in the near to medium term and hence maintain ‘Neutral’
on the stock with a revised SOTP based price target of Rs367 (earlier Rs370).