PL Stock Report: GAIL (India) (GAIL IN) - Q2FY24 Result Update – Strong operating performance - BUY
Prabhudas Lilladher Pvt Ltd
GAIL (India) (GAIL IN) - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd.
Rating: BUY | CMP: Rs120 | TP: Rs139
Q2FY24 Result Update – Strong operating performance
Quick Pointers:
§ EBITDA/PAT for H1FY24 came in at Rs 59.2/Rs 38.2 bn, down 3.4%/14.3% YoY, respectively.
§ EBIT margins for transmission and trading segment stood at Rs 12.9/17.8 bn, up 26%/76% QoQ respectively.
GAIL reported higher than estimated EBITDA of Rs 34.9 bn (up 44% QoQ, PLe: Rs 26.4 bn) while PAT came in at Rs 24 bn (up 70% QoQ, PLe: Rs 17.8 bn). Pipeline utilization increased to 52% owing to growing domestic demand. The company expects transmission volumes to grow to 132 mmscmd in FY25. Going forward, we build in a 4.8/4.5% CAGR volume growth over FY24-26E in transmission and trading segments. We maintain ‘Buy’ rating on the company, and value it at 9x FY26 adj EPS of 12.7 and the value of listed and unlisted investment at Rs 25 to arrive at our target price of Rs 139.
§ Significant YoY growth in volumes: Transmission volume increased 2.4% QoQ to 120.3 mmscmd. Trading volume at 97 mmscmd, was down 1.9% QoQ. Petchem sales grew 3.7% QoQ to 168KT while LPG sales were down 9% QoQ. LHC sales were up 15.7% QoQ to 81KT. On a YoY basis, there was a significant growth of 11.7%/55.6%/42.1% in transmission, petchem and LHC sales, respectively. Going ahead the company has guided for 6-7% volume growth in the trading segment and 12 mmscmd increase in transmission volume. On a conservative basis, we estimate transmission volumes at 120/126/132 mmscmd in FY24/25/26E. On the gas trading front we expect volumes at 99.6/104.6/108.7 mmscmd in FY24/25/26E.
§ Remarkable improvement in segmental EBITDA: Transmission EBITDA came in at Rs 16.5 bn, up 22% QoQ. Trading EBITDA at Rs 19.5 bn saw a significant growth of 77% QoQ. Petchem EBITDA loss narrowed to Rs 0.4 bn against an EBITDA loss of Rs 17.3 bn in Q1FY24. LPG transmission segment EBITDA also grew 8.3% QoQ to Rs 10.4 bn. However, EBITDA for LHC segment declined 98% QoQ to Rs 0.5 bn. Going ahead the company expects to make a marketing EBITDA of Rs 35 bn in FY24 and Rs 40 bn in FY25. However, we expect a marketing EBITDA of Rs 23.6/24.9 bn in FY25/26E.
§ Concall Highlights: 1) Capex incurred in Q2 stood at Rs 24.6 bn. 2) Margins improved QoQ due to better gas trading, lower gas cost and decrease in fuel cost in gas compressors. 3) Petchem utilization was at 79% and LPG transmission utilization was 97%. 4) Across its 6 GAs, it has 157 CNG stations and 2,74,000 d-png connections. Volume stood at 0.3 mmscmd. 5)Mumbai-Nagpur-Jharsuguda pipeline of 698 km will be completed by June ’24. 6) JHBD pipeline of 3289 km length, of which 2922 km is already commissioned and remaining to be completed by June’24. 7) PDH-PP plant at Usar with a capacity of 500 KTPA and capex of Rs 112.6 bn will be completed by April ’25.