Gas Authority of India (GAIL) share price today: GAIL’s Q3 FY21 operating profit at Rs 1920 cr (down 7.4% yoy; up 43.4% qoq) was 12% below estimate of Rs 2184 cr due to EBITDA loss of Rs 45 crore for the gas marketing business as compared to our and street expectation of positive EBITDA contribution from the segment. However, the petrochemical segment reported very strong performance with 5.2x yoy and 1.9x qoq jump in EBITDA to Rs 549 cr in Q3 FY21, led by higher petrochemical sales volume at 231kt (up 9.5% yoy) and a Rs 8000/tonne qoq improvement in realisation. Share price of GAIL is Rs 137 is up Rs 3 or 2.5%.

COMMERCIAL BREAK
SCROLL TO CONTINUE READING

Other segments of GAIL largely remain stable with the gas transmission segment’s EBITDA of Rs 1247 cr (up 2.2% yoy) as volume recovered to pre-COVID-19 level of 110 mmscmd. The LPG-LHC segment EBITDA was flat qoq (down 4.4% yoy) at Rs 304 cr. GAIL reported PAT at Rs 1487 cr (up 18.9% yoy; up 20% qoq) was largely in-line with Sharekhan’s estimate as weak gas marketing performance was offset by robust petchem margin, higher other income (up 50.7% yoy), and lower effective tax rate at 20.4% (vs assumption of 25.2%).

See Zee Business Live TV Streaming Below:

Sharekhan expects GAIL’s earnings to improve considerably over FY22-FY23, led by better margins in the gas marketing business (higher sale of US LNG contract in India and stabilizing spot LNG prices). Additionally, a higher HDPE price bodes well for sustained improvement in the profitability of the petchem business and management has guided 5-6% annual growth in gas transmission volumes (higher gas demand and benefit of unified pipeline tariff).

GAIL’s valuation of 6.1x its FY2023E EV/EBITDA (32% discount to historical average one-year forward EV/EBITDA multiple of 9x) seems attractive, given potential value unlocking from monetisation of gas pipeline assets and dividend yield of 5%. Hence, Sharekhan maintains Buy rating on GAIL with a revised price target of Rs 155.

GAIL Key positives:

Sharp improvement in profitability of the petchem segment with EBITDA of Rs 549 cr (up 5.2x yoy)
Gas transmission volume recovered back to pre-COVID-19 level of 110mmscmd; management has guided for sustainable 5%-6% growth in gas transmission volume annually.

GAIL Key negatives:

Continued weak performance of the gas trading segment with EBITDA loss of Rs 45 cr vs EBITDA loss of Rs 335 cr in Q2 FY21.

GAIL Key Risks:

Lower than expected gas transmission and marketing volumes amid COVID-19 demand slowdown. A sharp decline in LNG price and international oil prices could impact profitability of gas trading, petrochemical, and LPG-LHC segment.