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Decent performance; Outlook intact

GAIL India is a Government of India undertaking. The company processes and distributes natural gas and liquefied petroleum.

* GAIL’s Standalone revenue rose 0.6% QoQ to Rs. 15,549cr, primarily due to increase in petrochemicals sales volumes and robust price realization.

* EBITDA margin scaled up 410bps QoQ, backed by high revenues offset by mixed opex. Besides, PAT spiraled 28.3% QoQ to Rs. 1,908cr upon high other income.

* Petrochem business holds ~14% domestic market share.

* Given strong balance sheet and FCFs, overall performance to continue to outshine. Customer base to widen with new projects along with improvement in Gas business. Hence, we reiterate our BUY rating on the stock with a revised price target of Rs.193 based on SOTP valuation.

Petrochem segment stands out

Standalone revenue for Q4FY21 was up 0.6% QoQ to Rs. 15,549cr (-12.4% YoY) with surging Petrochemical business growth of 14.5% QoQ to Rs. 2,218cr (+82.2% YoY) owing to increase in sales volumes to 234kT with capacity utilization exceeding 100%. Increase in spot (+22.0% QoQ) and crude-linked LNG prices aided the Natural gas marketing segment with a granular uptick of 0.7% QoQ (-18.7%YoY) to Rs. 11,992cr, whereas LPG & LHC business de-grew by 1.5% QoQ / 25.0% YoY. Gas transmission volume stood at 109.8 MMSCMD while gas marketing dropped to 91 MMSCMD (vs. 110.4 MMSCMD/95.6 MMSCMD in Q3FY21). Transmission services segment revenue declined 5.0% QoQ with LPG/Natural gas shrinking 3.7%/5.1% QoQ at Rs. 169cr/ Rs. 1,531cr respectively.

Improved price realization kicks bottom-line up

EBITDA came in at Rs. 2,565cr (+33.6% QoQ, -0.5% YoY) while EBITDA margin expanded 410bps QoQ to 16.5% (+200bps YoY) with reduced employee spends at Rs. 336cr (-16.8% QoQ/+6.3% YoY). Other income improved to 20.7% QoQ at Rs. 568cr (+10.7% YoY). Resultantly reported PAT grew 28.3% QoQ to Rs. 1,908cr (-36.8% YoY). Better performance and healthy price realizations (@ Rs. 95/kg) further aided to this growth.

Key concall highlights

* Capex for FY2020-21 of ~Rs. 7Kcr was mainly spent on pipelines, equity contribution, and maintenance (partly capitalized). For FY2021-22, GAIL has guided a capex of ~Rs. 6.6Kcr.

* Company bought back ~ 6.98cr shares at a price of Rs. 150 during FY2020‐21.

* Approximately 114-115 MMSCMD gas sales volume is expected for the upcoming year.

* The management has given a thrust to expand in the areas of compressed biogas, ethanol and renewable energy.

Valuation

While company’s operations have recommenced with complete utilization, enhanced domestic gas production coupled with focused approach towards a gas based economy through prospective commissioning of expanded pipelines to further improve volumes and profits. Additionally, crude’s positive leverage should support prices in the nearterm. Hence, we reiterate our BUY rating on the stock with a revised price target of Rs. 193 based on SOTP valuation.

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