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GAIL (India) (GAIL)
Energy
A nice quarter but 2HFY12 less certain. GAIL reported 2QFY12 net income at `10.9
bn (+18.5% yoy and +11.1% qoq) versus our expected `12 bn; the negative variance
reflects (1) higher subsidy burden at `5.7 bn versus our expected `3.9 bn and (2)
foreign exchange loss of `500 mn. The qoq growth in net income was driven by (1)
better performance of the petrochemical, LPG and liquid hydrocarbons segments and
(2) 17% qoq lower subsidy burden. We maintain BUY rating on the stock with a revised
12-month SOTP-based target price of `535.
A healthy operational quarter
GAIL reported 2QFY12 EBITDA at `16.8 bn (+6.2% qoq and +15% yoy), lower versus our estimate
of `18.5 bn. The negative variance reflects (1) higher subsidy burden at `5.7 bn versus our
expected `3.9 bn and (2) higher other expenditure at `7.4 bn (+39.4% qoq and +46.5% yoy)
versus our expected `5.7 bn. The surprise on other expenditure reflects (1) higher survey expenses
and write-off of dry well expenditure at `939 mn versus `474 mn in 1QFY12 and (2) foreign
exchange loss of ~`500 mn. 2QFY12 was an operationally good quarter given (1) 1.6% qoq
increase in gas transmission volumes to 118.6 mcm/d, (2) increase in profitability of petrochemical
business with reported EBIT at `4 bn (+66% qoq) and (3) increase in profitability of LPG and other
hydrocarbons business with reported EBIT at `3.5 bn (+54% qoq).
Share of upstream companies kept at 33.3% of the gross under-recoveries in 2QFY12
We note that the Government has kept the share of upstream companies at 33.33% of the gross
under-recoveries in 2QFY12. However, the share of GAIL among the upstream companies
increased to 7.9% in 2QFY12 versus 4.6% in 1QFY12. However, we expect the Government to
increase the share of upstream companies in 2HFY12E given its fiscal constraints and accordingly
assume upstream companies to bear 45% of gross under-recoveries in FY2012E and 40% in
FY2013-14E; we assume GAIL’s share at 7% in FY2012E, 7.5% in FY2013E and 8% in FY2014E.
Maintain BUY rating with SOTP-based target price of `535
We maintain our BUY rating on GAIL given 26% potential upside to our revised SOTP-based target
price of `535 (`560 previously) based on FY2013E estimates. We have revised GAIL’s gas
transmission volumes to reflect a slow ramp-up in gas supply in India. We model gas transmission
volumes for FY2012E and FY2013E at 119 mcm/d and 125 mcm/d. Key downside risk stems from
(1) higher-than-expected subsidy burden and (2) lower-than-expected gas transmission tariffs.
Revised earnings for (1) higher subsidy, (2) lower transmission volumes and (3) weaker Rupee
We have revised our FY2012-14E estimates to `31.8, `33.8 and `36.2 versus `34.3, `36 and `41
to reflect (1) lower gas transmission volumes, (2) higher share of upstream companies, (3) weaker
Rupee and (4) other minor changes.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GAIL (India) (GAIL)
Energy
A nice quarter but 2HFY12 less certain. GAIL reported 2QFY12 net income at `10.9
bn (+18.5% yoy and +11.1% qoq) versus our expected `12 bn; the negative variance
reflects (1) higher subsidy burden at `5.7 bn versus our expected `3.9 bn and (2)
foreign exchange loss of `500 mn. The qoq growth in net income was driven by (1)
better performance of the petrochemical, LPG and liquid hydrocarbons segments and
(2) 17% qoq lower subsidy burden. We maintain BUY rating on the stock with a revised
12-month SOTP-based target price of `535.
A healthy operational quarter
GAIL reported 2QFY12 EBITDA at `16.8 bn (+6.2% qoq and +15% yoy), lower versus our estimate
of `18.5 bn. The negative variance reflects (1) higher subsidy burden at `5.7 bn versus our
expected `3.9 bn and (2) higher other expenditure at `7.4 bn (+39.4% qoq and +46.5% yoy)
versus our expected `5.7 bn. The surprise on other expenditure reflects (1) higher survey expenses
and write-off of dry well expenditure at `939 mn versus `474 mn in 1QFY12 and (2) foreign
exchange loss of ~`500 mn. 2QFY12 was an operationally good quarter given (1) 1.6% qoq
increase in gas transmission volumes to 118.6 mcm/d, (2) increase in profitability of petrochemical
business with reported EBIT at `4 bn (+66% qoq) and (3) increase in profitability of LPG and other
hydrocarbons business with reported EBIT at `3.5 bn (+54% qoq).
Share of upstream companies kept at 33.3% of the gross under-recoveries in 2QFY12
We note that the Government has kept the share of upstream companies at 33.33% of the gross
under-recoveries in 2QFY12. However, the share of GAIL among the upstream companies
increased to 7.9% in 2QFY12 versus 4.6% in 1QFY12. However, we expect the Government to
increase the share of upstream companies in 2HFY12E given its fiscal constraints and accordingly
assume upstream companies to bear 45% of gross under-recoveries in FY2012E and 40% in
FY2013-14E; we assume GAIL’s share at 7% in FY2012E, 7.5% in FY2013E and 8% in FY2014E.
Maintain BUY rating with SOTP-based target price of `535
We maintain our BUY rating on GAIL given 26% potential upside to our revised SOTP-based target
price of `535 (`560 previously) based on FY2013E estimates. We have revised GAIL’s gas
transmission volumes to reflect a slow ramp-up in gas supply in India. We model gas transmission
volumes for FY2012E and FY2013E at 119 mcm/d and 125 mcm/d. Key downside risk stems from
(1) higher-than-expected subsidy burden and (2) lower-than-expected gas transmission tariffs.
Revised earnings for (1) higher subsidy, (2) lower transmission volumes and (3) weaker Rupee
We have revised our FY2012-14E estimates to `31.8, `33.8 and `36.2 versus `34.3, `36 and `41
to reflect (1) lower gas transmission volumes, (2) higher share of upstream companies, (3) weaker
Rupee and (4) other minor changes.
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