GAIL - Q4FY12 Result update - Centrum

Dismal performance due to subsidies, one offs

GAIL reported dismal Q4 performance marred by higher subsidy burden (Rs13.4bn) along with one offs (almost Rs4.0bn). Transmission volumes were impacted due to declining KG D6 volumes and lower LNG imports. Transmission tariffs were lower due to provisioning for downward revision in tariffs while trading margins were also lower due to provisioning for debtors. However, support was provided by the petchem segment with strong prices. The management remained upbeat on transmission volume growth in FY13E supported by higher LNG imports from Petronet's Dahej and Kochi terminals along with Dabhol terminal which is expected to be commissioned in Q3FY13E. In longer term, gas imports from the US and through TAPI pipeline are expected to start from 2016-17 onwards.

Higher subsidies, lesser transmission volumes lower revenues: GAIL's revenues declined by 7.1% QoQ to Rs104.8bn owing to higher subsidies (Rs13.4bn inclusive of Rs3.4bn lower provisioning in Q3) and lower transmission volumes (2.8% QoQ decline).

One offs impact transmission tariffs and trading margins: Gas transmission volumes were impacted during Q4 due to lower spot LNG imports while transmission tariffs got impacted due to Rs2.5bn provisioning due to revision in tariffs and Rs1.2bn provisioning for debtors (issue related to GSPC and IOC). Gas trading volumes also got impacted due to lower spot LNG imports while margins suffered owing to Rs230mn provisioning. However, petchem segment supported the performance with robust prices above Rs75,000/ton.

Higher subsidy burden and provisioning leads to lower profits: Other income was higher in Q4 owing to dividend income from ONGC during the quarter. Subsidies jumped to Rs13.4bn including Rs3.4bn short provisioning made in Q3. Thus GAIL's PAT declined by 38.3% YoY and 55.7% QoQ to Rs4.8bn.

Transmission volumes can reach 120-121mmscmd by end FY13: The management is confident of exiting FY13 at 120-121mmscmd transmission volumes on the back of incremental volumes from ONGC's marginal field development (about 3-4mmscmd) and upcoming Kochi and Dabhol terminals. The company is expected to invest Rs75bn during FY13 which will expand the pipeline network by another 1,500km. GAIL operated Dabhol terminal in the month of March but due to technical reasons had to shut it down. Now, the terminal is expected to start by Oct.-Nov. this year. Of the Dabhol-Bangalore pipeline, phase I till Goa is likely to be completed by Aug. 2012 and phase II till Bangalore by end 2012. The management also indicated that the domestic natural gas prices are likely to move up in the next couple of years. Gas imports from the US and through TAPI pipeline are expected to start from 2016-17 onwards. The delivered price of US gas is expected to be about US$9.0-9.5/mmbtu considering Henry Hub natural gas price of US$3.0/mmbtu. We have revised our numbers downwards considering lower volumes, revised tariffs, higher debt etc. We still maintain 'Buy' on the stock with SOTP based revised price of Rs380 (earlier Rs462).

Source : Equity Bulls

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