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Gail (India) Ltd.| Q3FY13 First Cut | Ahead of expectations




IndiaNivesh Securities Pvt Ltd


15 Feb 2013





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Gail (India) Ltd.| Q3FY13 First Cut Analysis | Ahead of expectations GAIL Q3 FY13 reported PAT was above street as well as our expectation due to higher than expected margins from natural gas trading and transmission segment along with higher margins from LPG and liquid hydrocarbon segment (due to price increase and Rs 857 mn reversal of subsidy burden). Adjusted PAT (after excluding reversal of subsidy burden) stood at Rs 11.99 bn against our and street expectation of Rs. 10.02 bn and Rs. 10.32 bn, respectively. Top line came at Rs. 124.74 bn (higher than our as well as street estimates of Rs 111.29 bn and Rs 115.64 bn respectively) led by 10.6% y-o-y jump in natural gas trading business, 32.3% jump in LPG segment and 26% increase in petrochemical segment. However, Natural gas transmission revenue dipped 9% y-o-y due to lower output levels at RIL’s KGD6 fields. LPG & Liquid Hydro Carbons segment showed good performance on the back of higher price realization and lower subsidy burden. Margins in LPG and liquid hydrocarbon segment improved because of reversal of excess provision of Rs 857 mn towards subsidy made in Q2FY13. The company shared LPG subsidy burden Rs. 7 bn in Q3FY13. On operational front, natural gas trading volume declined to 82 mmscmd vs. 85 mmscmd in Q3FY12 however due to higher realization revenue increased by 10.6% y-o-y and 4.34% q-o-q to Rs 101.18 bn. Natural gas transmission volumes dipped 11.7% y-o-y to 105 mmsmcd due to lower output levels at RIL’s KGD6 fields. However, margins from natural gas transmission increased from 57.11% in Q3FY12 to 62.62% in this quarter. EBITDA margins improved by 12 bps YoY and 362 bps QoQ to 16%. The board has approved payment of interim dividend for the FY 2012-13 at 40% (Rs. 4/- per equity share). Valuation: We believe that GAIL would be able to overcome constrains of gas supply shortages and maintain growth due to dominant market position in gas transmission as well as diversified business model. We expect the growth to resume post FY13, with new supplies from the LNG terminals at Kochi, Dahej and incremental gas in the KG basin from RIL and ONGC. Further cap on of subsidized LPG cylinders and hike in diesel prices are positive for the stock. At CMP Rs. 333, GAIL trades at a P/E of 10.1x FY13 and 9X FY14 earnings estimates, which is lower than its historical PE of 14x. We maintain our BUY rating with SOTP based target price of Rs. 436.

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