Buy GAIL India; target of Rs 394: R K Global

“GAIL (India) Ltd. (GAIL) reported 38.3% Y-o-Y decline in its net profit to Rs4833.4mn on a 17.6% Y-o-Y growth in net sales of Rs104545.6mn during Q4FY12. On yearly basis, company posted 2.6% Y-o-Y net profit growth on 24.1% Y-o-Y growth in net sales.”

“GAIL reported revenue of Rs104545.6mn in Q4FY12 as compared to Rs88936.1mn in Q4FY11, registering a growth of 17.6% Y-o-Y (declined 7.2% on sequential basis). The revenue growth is attributed to Natural Gas trading sales which grew 27.5% Y-o-Y, representing 80% of GAIL’s gross sales. On yearly basis, net sales improved 24.1% Y-o-Y to Rs402807.4mn during FY12 as against Rs324586.4mn during FY11 of which revenue from natural gas trading grew 24.4% Y-o-Y. GAIL reported 40.4% Y-o-Y decline in its Core EBITDA to Rs7676.6mn during Q4FY12 as compared to Rs12876.9mn in Q4FY11 (declined 57.2% on sequential basis) on account of total expenditure which increased 7.1% Y-o-Y to 92.7% as a percent of sales of which 9.5% increase was witnessed in the Cost of Finished Goods and 3.8% increase in the O&M Expenses while Employee cost and RM cost declined 2.2% and 0.6% respectively as percent of sales. On yearly basis, core EBITDA grew 5.1% Y-o-Y to Rs58153.0mn, however, its OPM declined 289bps to 15.5% during FY12.”

“GAIL reported net profit of Rs4833.4mn in Q4FY12 as against Rs7830.7mn in Q4FY11 registering declined of 38.3% Y-o-Y. Company’s interest cost and depreciation increased 53.3% Y-o-Y and 28.2% Y-o-Y respectively which led PATM to decline 420bps to 4.6% during the same period. On yearly basis, company’s net profit grew 2.6% Y-o-Y to Rs36538.4mn during FY12 as against Rs35611.3mn during FY11. With this, GAIL’s PATM declined 190bps to 9.0% during FY12. At CMP, the stock is trading at P/E and EV/Core EBITDA of 8.2x and 5.3x respectively of FY13E EPS of Rs40 and EBITDA of Rs88784mn respectively. We updated our model incorporating Q4/FY12 earnings for GAIL to arrive at our SOTP value of Rs394 (earlier target Rs454), which offers an upside of ~19% from current level. We reiterate our “buy” rating on the stock,” says R K Global research report. 

Public holding more than 90% in Indian cos

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