Add GAIL Ltd for the Target Rs 200 by Emkay Global Financial Services Ltd
GAIL’s 1QFY27 SA EBITDA/APAT of Rs63.8/42.9bn significantly beat our estimates, driven by robust performance across segments. Gas marketing delivered a strong quarter, with PBT at Rs33.5bn vs annual guidance of Rs45bn, aided by cheaper HH-linked sourcing and a timing mismatch between JCC procurement prices and sales realizations. However, Management expects this benefit to normalize over subsequent quarters as indices converge, while retaining its Rs45bn PBT guidance. Gas transmission volumes stood at 122mmscmd in 1Q, with FY27 guidance at ~123mmscmd under the current geopolitical scenario. Petchem and LPG&LHC earnings in 1Q benefited from higher realizations, though Management expects earnings to moderate as realizations have softened. Petchem is currently operating at 100% utilization and is expected to see breakeven in FY27. GAIL targets an additional 7–8mmtpa LNG sourcing by CY30, with ~2.5mmtpa already tied up. We raise FY27E EBITDA by 12% on a stronger 1Q run-rate, while FY28/29E EBITDA increases by 5%/2% on better marketing and petchem earnings. We roll forward to Jun28E, raising our TP by ~11% to Rs200 from Rs180; retain ADD.
Results highlights
GAIL’s 1QFY27 SA adj EBITDA/APAT rose 2.0x/2.4x yoy (up 3.2x/3.5x qoq). D/A rose 1% qoq to Rs8.6bn, while other income of Rs5.7bn beat estimate by 91% (up 112% yoy). Gas transmission EBITDA rose 14% qoq on lower opex, while volume was up 3% qoq to 122.4mmscmd (2% miss). Gas marketing EBITDA rose to Rs37.7bn vs Rs1.0bn qoq, with RLNG margin significantly up, at $1.86/mmbtu (Emkay: $0.4/mmbtu). Marketing volume fell 8% qoq to 93.8mmscmd (8% miss). LPG transmission EBITDA rose 67% qoq to Rs1.4bn. Petchem EBITDA loss narrowed to Rs110mn from Rs3.9bn qoq on higher realization and lower gas cost, while utilization was lower at 25%. LPG-LHC EBITDA rose ~4.7x qoq to Rs8.0bn on better realization. GAIL’s opex at Rs26.8bn was 7% below estimate (down 9% qoq/up 12% yoy), with other expenses down 14% qoq to Rs21.7bn.
Management KTAs
1,707km MNJPL became fully operational in 1Q, with Jharsuguda demand at 0.5mmscmd and expectations of a ramp-up. Qatar force majeure and disruption of 7 cargos were bridged via 8 spot LNG cargos. Less than half the HH-linked LNG is back-to-back, ~20% is consumed at Pata, with balance available for Brent-linked optimization, while selective hedging continues. Pata has operated at ~50% utilization from mid-May, with petchem gas cost at $10.54/mmbtu in 1Q. Mangalore PTA is nearing commissioning, while Usar PDH-PP remains on track for Jun-27 commissioning. FY27 capex is guided at ~Rs115bn, with key pipeline projects on track. Heating system at Dabhol is expected by Jun-27
Valuation
We value GAIL on SOTP-EV/EBITDA, with investments at a 30% holdco discount and unlisted investments at 1.0x BV. We slightly raise our blended Jun-28E EV/EBITDA to 6.7x from 6.5x owing to segmental realignment. Key risks: Adverse commodity and currency movements, regulations, outages, and project delays.
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