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GAIL (India) Ltd.- Q2FY14 Result Update - "ACCUMULATE"




Kisan Ratilal Choksey Shares and Securities Private Limited


01 Nov 2013





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GAIL (India) Ltd.- Q2FY14 Result Update CMP: Rs 344 Target Price: Rs 374 Recommendation: ACCUMULATE “FY14 subsidy burden capped at Rs 1400 crs” GAIL reported net profit of Rs 916 cr above our expectation mainly on account of forex gain of Rs 222 crs (operationally was in line with expectations). Fall in transmission volumes and rise in the input cost of LPG production on account of fall in the KG D6 volumes (substitution with LNG) (by June-end 2013 these volumes dropped to 0 mmscmd) dragged down the profit on YoY basis, on QoQ basis PAT improved on account of other income (Rs 58 crs in Q1FY14). Subsidy share for the company remained stagnant on both YoY (adjusted subsidy) and QoQ basis at ~Rs 699 cr. Transmission volumes stood at 95 mmscmd, down both YoY and QoQ mainly on account of fall in KG D6 volumes and PMT volumes. The company imported 4 LNG cargoes during the quarter and has plans to import total 30 LNG cargoes for FY14. Dabhol terminal is expected be commercially operational by end of FY14 and Kochi terminal commissioned in September 2013, this could lead to an healthy natural gas transmission and trading exit rate by the end of FY14. Natural gas transmission business: Natural gas transmission volumes for the quarter stood at 95 mmscmd down 10% YoY and 5% QoQ. This decline is mainly on account of fall in the KG volumes and PMT volumes. Transmission tariffs on the other hand stood at Rs 1217.8/mscm up ~21% on YoY and ~10% QoQ(mainly due to flow of gas via new pipelines and normalization of tariffs post the write offs). LPG transmission business: LPG transmission EBIT stood at Rs 42.6 crs down 22.6% QoQ mainly on account of lower tariffs. However, the YoY performance was better on account of normalization of tariffs. Natural gas trading business: Trading volumes were down on an YoY and QoQ basis due to fall in the PMT volumes and LNG volumes on account of lower demand for LNG due to higher LNG prices and rupee depreciation . The company imported 11 LNG cargoes (9 spot cargoes) during the first half and has plans to import total 33 LNG cargoes for FY14. Petrochemicals business: GAIL’s petchem segment gross margins declined by ~10% QoQ and ~6% YoY to Rs 437 crs mainly on account of higher raw material cost due to gas swapping of KG D6 volumes with LNG. Sales volumes declined 17% QoQ and 6% YoY to 101,000 mt. LPG & other liquid hydrocarbon business: GAIL reported EBIT level loss in LPG and liquid hydrocarbons segment of –Rs 227 crs versus -Rs 10.9 cr in 1QFY14 and profit of Rs 66.4 cr in 2QFY13. The performance was weak despite higher realizations due to lower volumes and increase in raw material cost due to no supply of KG D-6 gas in the current quarter. LPG sales volume stood at 266,000 mt in 2QFY14 compared to 270,000 mt in 1QFY14 and 287,000 mt in 2QFY13. Other liquid hydrocarbons volume was at 71,000 mt compared to 80,000 mt in 1QFY14 and 74,000 mt in 1QFY13. Subsidy remained stable at Rs ~699 crs. Sale of stake in China Gas Holdings: GAIL has sold nearly one-fourth of its 4.6% stake in city gas distribution company China Gas Holdings for Rs.385 crs. The company had made an investment of Rs.137 crs by acquiring 210 mn shares of China Gas in 2005. It has now sold 60 mn shares. Valuation We believe that the transmission volumes have bottomed out and will pick up with the commissioning of Dhabol and Kochi terminals by end of FY14. Further expansion of the Dahej terminal and ramp up of the volumes of Kochi terminal afte...

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