Buy Gail India Ltd For Target Rs. 230 - Yes Securities
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Lower LPG -LHC sales lead to miss on estimates
Our view
The 4QFY22 operating profit at Rs 37.1bn (+45% YoY; -12% QoQ), missed our and street estimates, primarily on lower than estimated LPG-LHC sales. Despite 16% YoY and 21% QoQ lower LPG-LHC sales, strong YoY growth in profitability was driven by stronger natural gas trading margins along with strength in LPG -LHC realizations. Natural gas trading margins remained robust at USD 0.76/mmbtu (+474% YoY), on backs of strong spot LNG price environment. LPG-LHC realizations per unit, improved by 60% YoY aiding segment profitability by 54% YoY despite lower sales. In our view, going ahead the natural gas transmission and trading volume is poised for growth along with growth in consumption of natural gas in India.
Result Highlights
* Profitability: Operating Profit and PAT stood at Rs 37.1bn (+45% YoY; -12% QoQ) and Rs 26.8bn (+41% YoY; -18% QoQ). The strong YoY growth was primarily led by strength in gas marketing and LPG-LHC segment. While strong spot LNG environment facilitated stronger gas trading margins; stronger margins in LPG-LHC was driven by higher LPG prices (+60% YoY).
* NG Transmission: Gas transmission volume stood QoQ lower at 107.6mmscmd (3Q: 107.6mmscmd) as high LNG price environment impacted imports and consumption of LNG
* NG Trading: NG trading volume stood QoQ lower at 94.7mmscmd (3Q: 96.6mmscmd), on lower spot imports and sales. High spot LNG prices bode well for GAIL’s US LNG import and NG trading margins remained strong at USD 0.76/mmbtu (3Q: USD 0.76/mmbtu). Going ahead, while margins are expected to stay firm, but a moderation from 4Q levels can’t be ruled out.
* Petrochemicals: Petchem, sales stood QoQ lower at 216TMT (3Q: 217 TMT) with profitability at Rs 3.7bn (-38% YoY; +4% QoQ); while sales volume was relatively weak, but realization improved QoQ to Rs 116/kg (3Q: Rs 110/kg). .
* LPG-LHC: Segment profitability at Rs 7.3bn though 15% weaker QoQ, but stood 54% higher YoY. Strong YoY growth was led primarily by 60% higher realization even as sales volume missed estimates and at 217TMT stood weaker by 16% YoY & 21 QoQ.
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