Angel Broking's report on GAIL India
"GAIL's top-line grew by 28.1 percent yoy to Rs 15,981cr which was above our estimate of Rs 13,734cr due to a better-than-expected performance of the Natural Gas trading segment. Natural Gas trading, LPG and Natural Gas transmission segment revenues grew by 31.3 percent, 51.4 percent and 20.2 percent yoy respectively and its fuel subsidy burden stood at Rs 1cr in 3QFY2014 (vs Rs 700cr in 3QFY2013 and Rs 699cr in 2QFY2014)."
"The Petrochemicals segment's EBIT declined by 23.6 percent yoy to Rs 336cr and the Natural Gas transmission segment's EBIT declined of 33.6 percent yoy to Rs 411cr, thus resulting in GAIL's EBITDA posting a muted 11.5 percent yoy growth to Rs 2,232cr in 3QFY2014 whereas the EBITDA margin contracted by 208bp yoy to 14.0 percent."
"Depreciation expenses increased by 24.1 percent yoy to Rs 301cr, whereas the interest expenses increased by 65.4 percent yoy to Rs 91cr. The company reported an exceptional item related to gain on sale of long term investment of Rs 345cr. Excluding the exceptional gain, the adjusted net profit grew by just 3.9 percent yoy to Rs 1,334cr (above our estimate of Rs 1,229cr)."
Outlook and valuation: "Over the past few quarters, GAIL's transmission volumes have declined due to lower domestic gas production. Looking ahead, we do not expect any meaningful increase in the domestic production over the coming one year. Hence, we expect utilization levels for GAIL's pipelines to remain low during FY2015. Moreover, GAIL's high margins in the Natural Gas trading segment are unlikely to sustain over the medium to long term. Hence, we maintain our Neutral rating on the stock," says Angel Broking research report.
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