Oct 30, 2012, 02.36 PM | Source: Moneycontrol.com
Emkay Global Financial Services is bullish on GAIL India and has recommended buy rating on the stock with a target of Rs 406 in its October 29, 2012 research report.
, Emkay Global Financial Services |
“GAIL India’s Results were significantly below street and our expectation at PAT level. This was on account of derecognization of revenues of Rs1.23bn during the quarter in view of revision of Jamnagar-Loni LPG pipeline tariff by PNGRB. A provision for the same has been made with effect Dec’10 to Sept’12. Adjusted for this, PAT was better than expectations. Revenue for the quarter was at Rs.113bn, growth of 17.1% YoY, mainly on the back of better realization in Natural gas trading. EBITDA during the quarter was at Rs.14.1bn, decline of 15.7% YoY and 26.6% QoQ, due to derecognization of LPG transmission revenues, lower natural gas trading margins and higher subsidy burden for LPG & Liquid Hydrocarbons segment. Thus, the PAT declined by 10% YoY, 13.1% QoQ to Rs.9.8bn. Subsidy payout grew by 38% YoY to Rs.7.8bn.”
“Natural gas trading volumes declined by 3.6% YoY and 1.5% QoQ to 81mmsmd mainly on back of lower volumes from PMT and lower off-take by power plants due to heavy monsoon towards the end of quarter. Gross trading margins decreased significantly by 14.6% YoY and 50.7% QoQ to Rs.2.4bn. Sequentially the decline was sharper because in Q1FY13, GAIL had earned higher marketing margin out of low priced spot cargos. Transmission volume decline by 10.6% YoY and 3.8% QoQ to 105.6mmscmd mainly on account of decline in KG D6 volume. Sequentially transmission revenue grew by 7.6% to Rs.9.8bn, mainly on account of higher transmission tariff which grew by 21% YoY and 11.3% QoQ to Rs.1/scm.”
“Decline in domestic gas production leading to decline in transmission volumes would weigh on the stock. Also the issue of proposed cap on gas marketing margin, which is to be decided by PNGRB, would keep the stock under pressure until any clarity emerges. However we don’t see major earnings risk as it charges MoPNG-determined marketing margins on APM and PMT volume, which accounts for 80% of the total volume. Although the recent move by government to cap the use of subsidized LPG cylinders is positive for GAIL, it needs to be seen to what extent does it benefit GAIL in terms of subsidy sharing. At CMP, the stock trades at 11x FY14E EPS and 1.7x P/BV, maintain buy with TP of Rs.406,” says Emkay Global Financial Services research report.
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