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Gas Authority of India (GAIL) - Qtr. Update - Dated - October 25, 2013




Axis Capital Limited


26 Oct 2013





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GAIL’s Q2FY14 PAT at Rs 9 bn was in line with our and Street estimate as lower than expected Petchem and LPG EBIT was offset by strong trading margin and higher other income. Higher gas costs, lower LPG prices and high subsidy led to loss of Rs 2.3 bn in the LPG segment. Petrochemical volume decline of 11% QoQ surprised negatively given strong petchem performance by RIL. Lower subsidy in H2 already in our numbers: We expect nil LPG subsidy for GAIL in H2, which has already been approved by the oil ministry. The ministry is also likely to propose exemption of GAIL from subsidy sharing from FY15, which we believe may not be approved by Finance Ministry given high fiscal deficit. Oil ministry supportive of lower subsidy; will finance ministry oblige? Management indicated Oil Ministry has approved nil subsidy for the company in H2FY14 due to Rs 2.7 bn loss in LPG segment during H1FY14. However, we do not expect nil subsidy burden in FY15, as this would lead to 25% YoY growth in GAIL’s FY15 PAT. This benevolence by the government, especially when it is trying to reduce fiscal deficit, is unlikely. Maintain HOLD with March ’14 SoTP-based TP of Rs 360, which implies 19% upside from CMP. At CMP of Rs 344, the stock trades at 10x FY14E EPS of Rs 35 and 10x FY15E EPS of Rs 35. Key assumptions: Crude at US$ 110/ bl for FY14 and US$ 105/bl for FY15. INR/USD at 62 for FY14 and 64 for FY15. Regards, Amit Mishra, CFA (Sr VP – Energy) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1142 Prashant Tarwadi (VP – Energy) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1113

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