GAIL - Gas transmission exit rate for FY13E pegged at 115mmscmd - Centrum

GAIL reported weak performance during Q2 marred by lower gas transmission volumes, provisioning for change in LPG transmission tariffs, lower petchem sales and higher subsidy burden. Lower KG D6 volumes, coupled with lower off take from power producers, led to 3.5% QoQ decline in gas transmission volumes at 106.0mmscmd from 109.8mmscmd in Q1. Subsidy burden jumped by 38.7% YoY and 12.2% QoQ at Rs7.9bn. Higher other income somewhat supported profitability and hence GAIL reported 10.0% YoY and 13.1% QoQ drop in bottom line at Rs9.9bn. The management indicated an exit rate for gas transmission volumes for FY13E at 115mmscmd which would support performance going ahead.

- Rupee depreciation, higher petchem realisations lead to higher revenues: GAIL's revenues jumped by 17.1% YoY and 2.5% QoQ at Rs113.9bn owing to rupee depreciation and higher petchem realisations.

- Provisioning for revision in LPG transmission tariffs impacts performance: Revision in LPG transmission tariffs by the PNGRB regulator led to provisioning of Rs1.2bn thus leading to dismal performance. Even natural gas transmission volumes suffered due to the decline in KG D6 volumes and lower off take from power producers. Nonetheless, average transmission tariffs were better at Rs936/'000scm compared to Rs857/'000scm in Q1. Petchem realisations and sales supported the performance which improved sequentially by 1.6% at Rs86,634/ton from Rs85,303/ton in Q1 and 101,000tons from 66,000tons in Q1 respectively.

- Other income supports profitability: Other income for Q2 jumped by 104.1% YoY and 526.4% QoQ at Rs2.4bn owing to Rs1.0bn additional dividend income over and above normal divided income received from investments (in IGL, Petronet LNG, ONGC etc.). Depreciation was up 24.1% YoY and 14.8% QoQ to Rs2.5bn due to capitalisation of pipelines during Q2. Subsidies jumped by 38.7% YoY and 12.2% QoQ at Rs7.9bn. Higher other income along with lower effective tax rate (28.3%) partially offset the impact from lower transmission volumes, higher subsidies and provisioning thus leading to 10.0% YoY and 13.1% QoQ decline in bottom-line at Rs9.9bn.

- Gas transmission exit rate for FY13E pegged at 115mmscmd: Although, GAIL's gas transmission business reported weak performance, the management is upbeat to exit at 115mmscmd by FY13E. The incremental volumes are likely to emanate from Dabhol LNG terminal, Kochi LNG terminal and additional volumes from domestic sources. Dabhol terminal is expected to be operational by December2012- Jan 2013 and so too Kochi in similar time line. We have revised our gas transmission volumes based on H1FY13 performance and decline in KG D6 volumes. We do not foresee any significant triggers for the stock in the near to medium term and hence maintain 'Neutral' on the stock with a revised SOTP based price target of Rs367 (earlier Rs370).

Source : Equity Bulls

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