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Gail (India) Ltd. | Q1FY14 Result Update




IndiaNivesh Securities Pvt Ltd


26 Jul 2013





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Gail (India) Ltd. | Q1FY14 Result Update Slightly below our expectation GAIL Q1 FY14 reported PAT was below our as well as street expectation. Net profit decreased by 28.7% YoY to Rs 8.08 bn (against our expectation of Rs. 8.9 bn and street expectation of Rs. 9.8) bn due to higher than estimated subsidy burden and lower than expected margin from natural gas trading business. LPG and liquid hydrocarbon segment recorded loss during Q1FY14 due to higher subsidy burden. The company shared LPG subsidy burden Rs. 7 bn and bn vs. 5.87 bn in Q4FY13. Natural gas trading margin contracted by 263 bps YoY and 55 bps QoQ due to higher spot LNG prices. Top line increased by 15.9% YoY to Rs. 128.55 bn (higher than our estimates of Rs 121.52 and street estimate of Rs. 124 bn) led by 19.7% YoY increase in natural gas trading business and 92% increase in petrochemical segment. On operational front, natural gas trading volume declined by 1.2% YoY to 82 mmscmd while natural gas transmission volumes dipped 10% YoY to 99 mmscmd due to lower output levels at RIL’s KGD6 fields. However, petrochemical segment showed good performance, production volume increased by 83% YoY to 121 TMT and margin also expanded by 562 bps YoY and 55 bps QoQ. Valuation: We believe that GAIL would be able to overcome constraints on 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 2HFY14, 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. 329, GAIL trades at a P/E of 9.4X FY14e earnings estimates, which is lower than its historical PE of 14x. We maintain our BUY rating with SOTP based target price of Rs. 390.

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