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Result Highlights‐ Inline Earnings; Strong Prognosis

* 4QFY21 Profitability:

Operating Profit and PAT at Rs 25.6bn (+3.5% YoY; +33.6% QoQ) and Rs 19.1bn (‐35% YoY; +28% QoQ). Sequential improvement on stronger Petrochemical  and Gas trading segment even as gas transmission stood a shade weaker. The YoY decline in reported PAT in primarily on account of tax adjustments undertaken in the base quarter

* FY21 Profitability:

Ebitda & PAT at Rs 64.5bn (‐25% YoY) and Rs 48.9bn (‐26% YoY). The YoY decline in annual profitability stemmed from 4% YoY drop in NG transmission and 7% drop in NG trading volume on account of Covid pandemic. In addition NG Trading segment suffered a pre‐tax loss of Rs 7bn (FY20: Profit of Rs 21.5bn), on account of adverse dynamics in LNG market, contributing to weaker profitability in FY21.  

* NG Transmission:

Gas transmission volume stood QoQ marginally weaker at 109.8mmscmd (3Q: 110.3mmscmd), resulting in average gas transmission volume of 104.2mmscmd for FY21 (FY20: 108.4mmscmd)

* NG Trading:

NG trading volume stood QoQ weaker at 91.4mmscmd (3Q: 95.6mmscmd). The average for FY21 stood at 89.2mmscmd (FY20: 96.3mmscmd). The NG segment profitability turned black after consecutive losses in previous three quarter, with EBIT at Rs 2.8bn (USD 0.13/mmbtu)

* Petrochemicals:

Petchem, sales stood at 234TMT and profitability at Rs 6.1bn improved QoQ and YoY on account of 35% YoY & 13% QoQ higher realizations at Rs 94.8/kg. The annual sales at 872 TMT, stood 18% higher YoY leading to a pre‐ tax profit of Rs 10.6bn for the segment, vs a loss in the FY20.   

* LPG‐LHC:

Segment profitability improved 68% QoQ, despite 20% QoQ lower sales volume at 257TMT, on account of stronger LPG realizations. The annual sales at 1138TMT stood 10% lower YoY, leading to an EBIT of Rs 13bn (‐17% YoY).   

* Capex:

GAIL incurred a capex of ~Rs 70bn for FY21, the planned capex for FY22, Fy23 and FY24 is estimated at Rs 70bn, Rs 120bn and Rs 90bn, in light of almost 71 projects, worth Rs 475bn being under‐execution.

* Dividend:

Declared Rs 22380 mn as dividend at Rs 5/sh during FY21

* Share Buyback:

GAIL successfully concluded its Buy‐Back program in Mar’21, buying back 69.8 mn shares worth Rs 10460mn, implying 2.5% of net worth

View & Valuation

The 4QFY21 earnings, stood broadly in‐line with our and street estimates. The earnings were healthy on several counts, despite a tumultuous FY21 as a) NG trading segment reported in black, after losses in previous three quarter, indicating revival, b) Petchem and LPG segment reported strong margins on resurgent prices. We believe that prognosis for FY22 and beyond is healthy as a) NG transmission and trading volumes are expected to improve at 6‐8% CAGR and b) investment in pipeline and petrochemical capacity addition would also aid earnings going forward.  

We maintain our BUY rating on GAIL with a TP of Rs 250/sh. Our TP implies a target P/E multiple of 17.5x (FY23e S.A.) as against 11.4x stock is currently trading at. Our SOTP based TP is a sum of a) stand‐alone business valued at Rs 141/sh on DCF, b) Listed investment valued at Rs 41/sh and unlisted investments at Rs 56/sh.

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