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25 May, 2015 22:56 IST
`Accumulate` GAIL; target Rs 449: Emkay
Source: IRIS Exclusive | 25 Jan, 2012, 08.31AM
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Emkay Global Financial Services has maintained `Accumulate` on GAIL (India) with a price target of Rs 449 as against the current market price (CMP) of Rs 368 in its report dated Jan. 24, 2012. The broking house gave the following rationale:

GAIL reported results which were inline with our estimates. Revenue for the quarter was at Rs 112.9 billion, growth of 35% YoY, mainly due to better performance from petrochemical, transmission and trading segment.

EBITDA during the quarter was at Rs 17.9 billion, growth of 34.6%, YoY. During the quarter the company reported net profit of Rs 10.9 billion, growth of 12.8% YoY. Subsidy payout stood at Rs 5.3 billion growth of 28% YoY, mainly due to higher crude oil prices compared to previous year.

Revenue has increased by 35% to Rs 112.9 billion in Q3 FY12, mainly due to higher volume growth and higher realisation in both Transmission and Trading segment on the back of higher spot LNG off take. During the quarter company has imported 4 LNG cargos. Transmission revenue grew by 0.3% to Rs 10 billion, while volume and realisation grew by 0.3% to 119 mmscmd and 9.4% to Rs 0.91/scm, QoQ respectively. While trading revenue jumped 22.8% QoQ to Rs 82.6 billion. Trading volume for the quarter stood at 85 mmscmd against 84 mmscmd sequentially. We believe transmission volume for Q4 FY12 would be around 119-121 mmscmd.

During the quarter petchem and LPG & LHC volume declined by 5% to 0.359 mnt and 12% to 0.113 mnt QoQ mainly due to plan shutdown during the quarter. However realisation for both petrochemical and LPG segment grew by 6.8% to Rs 76.8/kg and 2.9% to Rs 26.9/kg.

During the quarter, subsidy payout stood at Rs 5.3 billion, growth of 28% YoY. However on sequential basis under recover was declined by 5%. We understand there was no communication from ministry on subsidy share for the quarter. Hence, the subsidy burden accounted on ad-hoc basis. We have tweaked our estimates marginally for FY12E & FY13E based on the higher under recovery assumption.

Outlook & Valuation:

Better Q3 FY12E results were mainly driven by performance from trading and transmission segment. Also subsidy burden was lower as compared to expectations at Rs 6.8 billion. We have positive bias on GAIL, (Q,N,C,F)* given its dominant market share in transmission business. However, lack of visibility on gas volume growth front on the back of delays in increase of domestic gas production, would weigh on the stock. We factor in 125 mmcsmd for FY13E v/s 118.5 mmscmd in FY12E. Also the recently news on proposed cap on gas marketing margin which is to be decided by PNGRB would keep the stock under pressure until any clarity emerges. Currently, stock trades at 12x FY13E EPS and 1.9x P/BV, we maintain `Accumulate` rating on GAIL with the revised TP of Rs 449.

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