GAIL India - 1QFY2014 Result Update - Angel Broking

For 1QFY2014, GAIL India (GAIL) reported a lower-than-expected profit due to a higher-than-expected subsidy burden. We maintain our Neutral rating on the stock.

Top-line grew by 15.9% yoy: The company's top-line grew by 15.9% yoy to Rs.12,856cr (above our estimate of Rs.12,296cr), mainly due to increase in net sales in the Petrochemicals (+92.2% yoy) and Natural Gas trading (+19.7% yoy) segments. The company's fuel subsidy burden stood at Rs.700cr in 1QFY2014.

EBITDA declined by 22.9% yoy: The Petrochemicals segment's EBIT grew by 123.8% yoy to Rs.438cr. However, Natural Gas trading segment's EBIT decreased 39.0% to Rs.303cr and the LPG segment reported a loss of Rs.11cr in 1QFY2014 compared to a profit of Rs.437cr in 1QFY2013. GAIL's EBITDA therefore declined by 22.9% yoy to Rs.1,464cr in 1QFY2014; the EBITDA margin contracted by 574bp yoy to 11.4%.

Higher depreciation and taxes drags PAT: The depreciation expense increased by 29.4% yoy to Rs.281cr, whereas the tax rate stood at 34.0% in 1QFY2014 compared to 32.7% in 1QFY2013. Consequently, the net profit declined by 28.7% yoy to Rs.808cr, which is below our estimate of Rs.918cr.

Outlook and valuation: Over the past one year, gas production from the KG basin has declined significantly. Further, we do not expect any meaningful increase in the production at KG D6 over the coming two years. Hence, we expect utilization levels for GAIL's pipelines to remain low during FY2014. Moreover, a cap on the gas marketing margin (which is currently under review by the PNGRB) would remain an overhang on the stock. Hence, we maintain our Neutral rating on the stock.

Source : Equity Bulls

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