GAIL India - 1QFY14 results - Nirmal Bang Institutional

GAIL (India) posted a net profit of Rs8.08bn for 1QFY14 compared to Bloomberg consensus estimate of Rs9.54bn and our estimate of Rs9.66bn. The profit declined on account of: (1) The liquefied petroleum gas (LPG) segment witnessing a fall in realisation and LPG supply from Krishna Godavari (KG) basin D6 field dropping to almost nil in June 2013, (2) Subsidy burden remaining stable at Rs7.0bn, and (3) EBIT margin of the LPG segment turning negative 1.1%. We have cut our rating on the stock to Sell from Hold, reducing our target price to Rs316 from Rs366 earlier, to reflect: (1) Medium-term upside likely to be capped on lower utilisation of natural gas pipeline and prospective good traction pipeline in the virgin market of the southern region facing inordinate delay, (2) Overhang of the impact on margins of petrochemicals/LPG segments following APM (administered pricing mechanism) gas price hike effective from 1 April 2014, (3) No clarity on the amount of subsidy burden post new gas prices coming into effect, and (4) Reduction in our FY14/FY15 EPS estimates by 6.1%/12.0%, respectively, to reflect higher gas prices with Rs28bn/Rs20bn of subsidy burden, respectively.

Source : Equity Bulls

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