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Oil & spot LNG surge to drive strong rebound

GAIL’s Q4FY21 standalone PBT is up 6% YoY (EPS down 14% YoY on higher tax) driven by rise in petrochemical EBITDA. Consolidated Q4 EPS is down 24% YoY. FY21 EPS is down 18% YoY hit mainly by gas marketing EBITDA in the red due to plunge in oil and spot LNG prices. We estimate FY22E gas marketing EBITDA to be up Rs31bn YoY as surge in oil and spot LNG vs modest rise in Henry Hub (HH) gas price would mean sale of HH-linked US LNG at higher oil / spot LNG-linked prices. FY22E outlook for LPG EBITDA is better due to oil price surge, as well as for petrochemical EBITDA given record polyethylene (PE) margins. Upgrade across most segments has meant 8% upgrade to FY22E EPS and 13% in target price to Rs207 (28% upside). Further upsides appear likely. Reiterate BUY.

Q4 PBT up driven by petrochemicals; gas marketing back in the black:

Q4 PBT is up 6% YoY driven by 3.9x YoY surge in petrochemical EBITDA. Gas marketing EBITDA was back in the black, on surge in spot LNG, at ~Rs7bn in Q4 vs Rs10.2bn loss in 9M. Q4 EPS is down 14% YoY on 3.4x YoY jump in tax. FY21 standalone and consolidated recurring EPS are down 18% YoY hit mainly by gas marketing EBITDA in the red at minus Rs3.2bn vs Rs22.7bn in FY20.

Raise FY22E EPS & target price by 8-13%;

further upside possible: Oil price surge augurs well for FY22E gas marketing and LPG EBITDA. Supply disruptions in US due to snowstorms in Feb’21 boosted petrochemical EBITDA by 32% QoQ in Q4FY21. With PE margins up 10% QoQ, Q1FY22E EBITDA may be up 35% QoQ. To factor-in the strength in LPG, PE and oil prices and gas transmission EBITDA beat in FY21, we have raised FY22E LPG EBITDA by 26%, transmission by 6% and petrochemical by 14%, which has led to an upgrade in FY22E EPS by 8% and target price by 13% to Rs207 (28% upside). FY22E gas marketing EBITDA of Rs27.6bn, which assumes HH-linked US LNG sales at oil-linked price of US$62.2/bbl, is kept unchanged. Upside to our estimate appears imminent as: 1) FY22E Brent is US$68.8/bbl at latest futures, and 2) some US LNG cargoes likely to be sold at spot LNG price (in Q1FY22 due to covid hit to domestic demand and in H2FY22E to gain from seasonal strength) will be more profitable than sales at oillinked price. Further upsides to LPG, petrochemical and gas marketing EBITDA of 10%, 39% and 50% respectively are possible and may mean 1-5% upside to fair value at Rs210-217 and 2-21% to FY22E EPS.

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