Buy Gail (India); target of Rs 375: ICICI Direct

ICICI Direct's research report on Gail (India)

Gail India reported a mixed set of Q4FY18 numbers. While natural gas transmission and LPG/LLH segments were broadly as per our estimates, the natural gas trading and petchem segment results came in below our estimates. Revenues were at Rs 15430.7 crore, above our estimate of Rs 13693.9 crore EBITDA increased 9% YoY to Rs 1695.3 crore, below our estimate of Rs 2030.4 crore, mainly on account of lower margins in natural gas trading and higher costs in the petchem segment. Higher costs were mainly on account of usage of expensive spot LNG due to a delay in delivery of long term volumes As a result, reported PAT at Rs 1020.9 crore came in below our estimate of Rs 1218.2 crore.

Outlook

Petroleum and Natural Gas Regulatory Board (PNGRB) has proposed consultation as a response to Gail’s proposal for a unified tariff plan. Implementation of the same will provide significant movement in Gail’s performance. On the operational front, stable gas volumes, further pipeline expansion, growing CGD sector, and increase in LPG & petchem prices would serve as a key trigger for the stock. We value the company using the SOTP methodology, valuing the core business using DCF and assigning a target multiple to the EBITDA of other business segments with BUY recommendation and target price of Rs 375.