Buy GAIL India; target of Rs 551: ICICIdirect

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26 Aug, 2025 12:21

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ICICIdirect.com`s research report on GAIL India“Gail reported its Q1FY15 results with revenues at Rs 13372.2 crore, below our estimate of Rs 14666.9 crore mainly due to lower revenues from the gas trading and gas transmission services segment. EBITDA at Rs 1044.8 crore came below our estimate of Rs 1626.5 crore while the EBITDA margin at 7.8% was below our estimate of 11.1%. Loss in the natural gas trading business and lower petchem profitability mainly led to lower EBITDA. The LPG and liquid hydrocarbons reported better numbers in-spite of higher subsidy burden at Rs 500 crore. Consequently, PAT during the quarter declined 23.1% YoY to Rs 621.4 crore, below our estimate of Rs 869.1 crore.” “The natural gas transmission volumes in Q1FY15 stood at 96.9 mmscmd as against 95 mmscmd in Q4FY14 while the LPG transmission remained flat QoQ at 0.8 MMT in Q1FY15. Gas transmission business earnings factors a one-time hit of Rs 240 crore on lower notified tariffs for Cauvery basin pipelines (~Rs 150 crore) and new pipelines (~Rs 100 crore) - Dabhol- Bangalore, Chainsa-Jhajjar, etc. and is expected to stabilise from the next quarter. The company expects volumes to increase in FY15E on account of incremental volumes of 4 mmscmd from domestic supply & increase in number of LNG cargoes at Dahej & Dabhol. We expect the transmission volumes to be at 99 mmscmd & 106.2 mmscmd for FY15E & FY16E, respectively. The gas trading segment reports EBIT loss of Rs 35.5 crore on account of sharp decline in LNG prices and additional sale of APM gas resulting in under-recovery of imported LNG purchase by Rs 190.3 crore which would be recouped in the next quarter. We expect the situation to stabilise from Q2FY15 onwards and we assume gas trading quarterly EBIT run-rate of Rs 400 crore.” “In the petchem business, volumes for Q1FY15 came at 87 KTPA in Q1FY15 against 121 KTPA in Q1FY14 mainly due to unplanned shutdowns. The petchem EBIT at Rs130 crore came below our estimates on account of RLNG being a higher proportion of the raw material and higher other cost. After the completion of the capacity addition at Pata in Q3FY15E, propane will be used as a raw material, yet keeping the RLNG proportion high at 50-60%. The LPG/LCH volumes have not grown over the years (FY07- 1346 KTPA; FY14- 1308 KTPA). The reason for volume decline in LPG business has been reduction in volumes from Panna- Mukta-Tapti (PMT). However, this quarter in spite of higher than expected subsidy of Rs 500 crore, the performance improved due to lower costs. The management expects that going ahead; GAIL will be excluded from subsidy mechanism or at least this burden will reduce once the gas price hike is implemented. Doubling of petrochemical capacity and reduction in subsidy burden borne by Gail’s LPG business would be growth drivers for Gail. The gas pricing policy, the growing CDG space and resolution of legal issue on Kochi-Mangalore-Bangalore pipeline would be the positives for the company. Gail is currently trading at 9.5x FY16E EPS, at a discount to its historical P/E ratio of 12.5x in the last five years. We maintain BUY recommendation on the stock with a target price of Rs 551,” says ICICIdirect.com research report. 

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