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Our View

GAIL's Q1 FY25 performance was a beat, with EBITDA/PAT at Rs 45.3bn/Rs 27.2bn, up 86.1%/92.9% YoY, EBITDA exceeding expectations by a big margin. The standout performer was Natural Gas transmission on better volumes and gas trading on better margins. Petchem reported weaker numbers versus our expectations while other segments were in line to our expectations. The management guidance on volume growth for NG transmission segment annually at 10-12mmscmd for next 2-3year and gas trading EBITDA over Rs 45bn creates a bullish sentiment but given the stock price rally leads less upside on CMP. We maintain a NEUTRAL rating on GAIL, with a revised 12-mth TP of Rs248 (vs 229 earlier).

Result Highlights

* Performance: GAIL’s Q1FY25 EBITDA/ PAT were Rs45.3bn/Rs27.2bn, up 86.1%/92.9% YoY and 27.3%/25.1% QoQ (EBITDA/PAT higher than our estimate of Rs36.3/18.8bn on higher NG transmission volumes, margins, and natural gas trading. The overall performance was largely driven by NG transmission and trading offsetting marginal weak Petchem performance.

* Gas transmission volumes were higher than our expectation at 131.8mmscmd, up 15.5mmscmd YoY, 8.1mmscmd QoQ, Gas capacity utilisation (pipelines) was ~63%. Revenue was Rs2,389/tscm (down 3% YoY but up 1% QoQ). Opex/unit was lower YoY and to our expectations due to there being no allocated APM gas. The segment gross margins at Rs 1,639/tscm was up 28% YoY and 15% QoQ on higher volumes and unified tariff implementation which resulted in an increase in the tariffs on YoY basis.

* LPG transmission volumes were 1,065 (‘000 mt), down 1% YoY, 4% QoQ. Revenue/ton was Rs1,688, up 2% YoY and 1% QoQ, while the gross margin/ton was Rs939 (up 5% YoY, 6% QoQ).

* Gas trading volumes were 99.5mmscmd, higher YoY by 0.6mmsmcd and down 0.4mmsmcd QoQ. The margin was stronger at Rs2,524/tscm (Rs1,790 the prior quarter and just Rs1,226 a year ago). The performance was better than our expectations on better contracted basket.

* Petchem production was down 1% YoY and 35% QoQ, to 162 (‘000 mt). The realisation was down 8% YoY but up 4% QoQ as the gas got cheaper on YoY basis and higher on QoQ basis.

* LPG and LHC. Sales volumes were down 12% YoY and 16% QoQ; while the realisation was flat YoY and QoQ. ? CGD segment. The CGD revenue/EBIT at Rs bn 32.3/1.9 up 34.3%/41% YoY but down 4.5%/25.4% QoQ. ? Capex. As per PPAC, the company has incurred Rs15.1bn and FY25 is targeted at Rs115bn, mainly on pipelines, petrochemicals, equity to JVs, etc.

Valuation

We believe GAIL’s EBITDA to record a 13.3% CAGR over FY24-26e led by a 17% CAGR in gas transmission EBITDA. The gas transmission business has bright prospects (currently contributing ~52% to EBITDA in FY26e, expected to increase further) while the commodity business is a little volatile. The stock recent rallied in line with Q1 performance, we maintain our rating of NEUTRAL with a revised TP of Rs248 (vs 229 earlier), valuing it on a sum-of-parts basis (core business at Rs209, 10x EV/EBITDA and investments at Rs39).

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