Buy GAIL India Ltd For Target Rs 157 - Yes Securities
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Petchem result weights heavy on earnings
Our view
GAIL reported 1QFY24, significantly below estimates, with adjusted operating profit at Rs 243bn (-44% YoY; +692% QoQ). Gas transmission segment reported a pre-tax profit of Rs 102bn. GAIL’s p/l tariff was recently (Mar’23) revised upwards to Rs 58.6/mmbtu, however GAIL is of the view that tariffs need further upward to Rs 68.55/mmbtu. Many pipelines are getting commissioned in FY24 which will result in increase in volumes. Current transmission volumes are 116mmscmd, post completing of projects this is to rise to 123mmscmd in FY24 and another 15mmscmd by FY26. Capex during the quarter was Rs 24bn. Working on transition to sustainable future with projects in green hydrogen, renewables. Volumes increased due to increase in RLNG sales, resumption of supply & decreased oversea volumes. Initiatives taken to reduces the losses of petrochemical segment. Going ahead, with moderation in domestic gas and LNG prices, the business for GAIL appears to be improving across segments. Maintain BUY.
Result Highlights
? Profitability: Adjusted Operating Profit and PAT stood at Rs 24.3bn (-44% YoY; +690% QoQ) and Rs 14.1bn (-52% YoY; +134% QoQ), respectively.
? NG Transmission: Gas transmission volume stood higher by 6% YoY & 7% QoQ at 116.3mmscmd (4QFY23: 108.2mmscmd). The segment revenue stood at Rs 25.9bn (+56% YoY; +57% QoQ), Ebitda increased by 24% YoY & 355% QoQ to Rs 13bn.
? NG Trading: NG trading volume stood lower by 2% YoY and higher by 2% QoQ at 98.8 mmscmd. Ebitda for the quarter was Rs 11bn (-54% YoY & +91% QoQ). Ebit stood at Rs 1.13/scm.
? Petrochemicals: Petchem, sales improved to 162TMT (+49% YoY; +37% QoQ). Realizations also decreased QoQ to Rs 107/kg (4Q: Rs 115/kg); Revenue and Ebit for the segment therefore stood at 17.3bn (+19% YoY; +27% QoQ) and Rs (3.0)bn, led by weakness in petrochemical prices global
? LPG-LHC: Sales for the quarter stood at 247TMT (+12%YoY; +7% QoQ). The Revenue for the segment stood at Rs 13.1bn (-9% YoY -3% QoQ); Ebitda stood at a Rs 2.2bn (-66% YoY & +54% QoQ).
Valuation
We maintain BUY rating on GAIL, with revised Mar’24 TP of Rs 157/sh.
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