Maintain ADD on Gas Authority of India - Better realisations surprise positively - HDFC Securities

Mr. Harshad Katkar & Mr. Nilesh Ghuge, Institutional Research Analyst, HDFC Securities.

Gas Authority of India (Q4FY20): Better realisations surprise positively. Maintain ADD
(TP Rs 110, CMP Rs 101, MCap Rs 457bn)

Our ADD recommendation on GAIL with a TP of INR 110 is based on 9% CAGR expansion in gas transmission volume over FY21-23E to 113mmscmd on the back of (1) Better pipeline connectivity, (2) Revamp of fertiliser plants and (3) Benign gas prices.

View on the result: EBITDA exceeded our estimates by 34% largely owing to 23/52% higher realisation in the petrochemicals and LPG and Liquid Hydrocarbon segments.

NG transmission: Revenue in 4QFY20 was up 6.1% YoY to INR 16bn owing to 5.5% jump in transmission tariff to INR 1,574/tscm. Similarly, in FY20, revenue jumped 4.4% YoY to INR 60bn backed by 3.5% increase in tariffs to INR 1,524/tsm. We expect NG transmission volumes to be 95.5/112.2mmscmd in FY21/22E from 108.4 mmscmd in FY20.

Petchem: Revenue during 4Q dipped 29/17% YoY/QoQ to INR 12bn led by fall in sales volume by 18% YoY/QoQ to 174kT. Distress prices of polymers (HDPE, LLDPE) has resulted in 13% YoY fall in realization to INR 70/kg. Hence, the segment reported EBITDA of INR 1.85bn (up 108/76% YoY/QoQ). For FY20, the segment reported EBITDA of INR 2bn vs. INR 8bn in FY19, comprising merely 2% of FY20 EBITDA vs. 8% in FY19.

NG marketing: Sequentially, NG marketing EBITDA improved by 20.4% to INR 6bn owing to better trading margins. Trading margins stood at INR 709/tscm vs. INR 664/593 in 4QFY19/3QFY20. We expect trading margins of INR 146/155 tscm in FY21/22.

View on the balance sheet: Consol debt jumped 3.2x YoY to INR 66bn leading to a net debt position of INR 53bn vs. INR 6bn YoY. GAIL entered into composite tripartite framework agreement with Konkan LNG Limited (KLL) and its lenders for settlement of KLL's Loan as per a Debt Resolution Plan. As per the plan, GAIL provided inter corporate loan of INR 27bn to KLL for settlement with lenders. Consequent upon the debt resolution plan, GAIL's shareholding in KLL has jumped from 40.9% to 69.1%, thus a subsidiary.

Change in estimates: We raise our FY21/22 EBITDA estimate by 64/3% to INR 46/64bn driven by higher than estimated (1) Realisation for petchem, LPG and liquid hydrocarbons and, (2) Transmission volume and tariffs. Our EPS estimate jump by 2.8x/26% in FY21/22 to INR 5.9/8.9 considering the change in effective tax rate to 25.2% (36.2/31.4% in FY19/18).

Shares of GAIL (INDIA) LTD. was last trading in BSE at Rs.103.15 as compared to the previous close of Rs. 101.35. The total number of shares traded during the day was 2296786 in over 10940 trades.

The stock hit an intraday high of Rs. 106.9 and intraday low of 102.45. The net turnover during the day was Rs. 240639334.

Source : Equity Bulls

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