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GAIL( India) Ltd. (GAIL) - Qtr. Update - Dtd. - February 14, 2013




Axis Capital Limited


15 Feb 2013





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GAIL’s adjusted PAT at Rs 13.7 bn was higher than our and Street estimate of Rs 10.7 bn due to strong LPG segment performance. LPG EBIT rose 65% YoY to Rs 5 bn due to higher realization (up 40% YoY) and lower subsidy burden at Rs 7 bn. Operational highlights  Gas transmission volume remained flat at 105 mmscmd, while EBIT increased 2% QoQ to Rs 6.2 bn  Gas trading EBIT increased 22% QoQ due to higher proportion of spot LNG in overall trading mix. Trading volumes rose 2% QoQ to 82 mmscmd  Petrochemical EBIT rose 5% QoQ to Rs 4.4 bn despite 27% fall in volume, implying ~14% increase in operating costs Increase FY13 estimates; upgrade to BUY We increase our FY13 EPS estimate to Rs 34.7 (Rs 30.5 earlier) to factor in higher profitability of LPG business. Increase in crude prices (and subsequent increase in LPG and petrochemical prices) would have a positive impact on GAIL’s profitability, valuations provided subsidy remains stable. Moreover, incremental gas supplies from new LNG terminals (Dabhol, Kochi) and increase in existing terminal capacities (Dahej, Hazira) would improve gas supply visibility in the near term. In the longer run, we expect significant LNG capacity addition, which would benefit both GAIL and GSPL. Upgrade to BUY with TP of Rs 395 (Rs 390 earlier), which implies 18% upside from CMP. At CMP of 334, the stock trades at 12x FY14E EPS of Rs 31.3 and 12x FY15E EPS of Rs 31.5. Key Assumptions: Crude at USD 110/ bbl for FY14 and USD 90/ bbl for FY15. INR/USD at 53 for FY14 and 51.4 for FY15. Regards, Amit Mishra, CFA (Sr VP – Energy) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1142 Prashant Tarwadi (AVP – Energy) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1113

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