Buy GAIL; target of Rs 110: Emkay Global Financial

Emkay Global Financial's research report on GAIL

GAIL’s Q2FY23 standalone EBITDA/PAT missed our estimates by 31%/20% at Rs17.6bn/Rs15.4bn, on weaker gas marketing margins and LPG&LHC earnings, partly offset by lower petchem losses, beat in transmission & Other Income, and lower taxes. Gas transmission EBITDA was down 7% QoQ to Rs10.1bn with rise in opex, though volume was down only 2% at 107.7mmscmd. Marketing EBITDA fell 81% to Rs4.5bn, with volumes down 8% to 92.5mmscmd. RLNG margin stood at USD0.15/mmbtu, down 89%. Petchem utilization fell to 47% due to the Gazprom hit and high RLNG prices. EBITDA loss was Rs2.1bn (vs. our est of Rs5.9bn). LPG&LHC EBITDA stood at Rs5.2bn, an 18% miss on higher opex. LPG transmission realization & volumes were better than expected.

Outlook

We cut FY23E EPS by 22%, to reflect H1 numbers and weaker petchem, LPG and transmission; we also trim FY24/25E EPS by 10%/8%, building-in conservative margins. We cut our Sep-24 TP by 9% to Rs110/share (retaining 5x EV/EBITDA); maintain BUY.