Buy GAIL; target of Rs 115: Emkay Global Financial

Emkay Global Financial's research report on GAIL

GAIL’s Q3FY23 standalone EBITDA/PAT at Rs2.6bn/Rs2.5bn sharply missed our estimates, on weakness across segments due to gas marketing inventory loss, Gazpromled volume disruptions and gas cost pressure in transmission and LPG-LHC segments. Gas transmission EBITDA fell 28% QoQ, despite only a 4% volume drop to 103.7mmscmd. Marketing EBITDA plummeted to Rs30mn, with volume down 3% to 89.9mmscmd, albeit RLNG margin turning negative. LPG EBITDA also turned negative, with jump in unit opex. While Q3 was possibly the worst-ever quarter for GAIL, Company outlook is positive, with PNGRB’s decision on material tariff hikes nearing and cool down in LNG prices lowering cost pressures & supporting demand. GAIL may be close to signing a term LNG deal.

Outlook

We cut FY23E EPS by 23%, to reflect the overall weakness in 9MFY23, though FY24-25E EPS is only slightly altered. We build-in conservative assumptions compared with Mgmt guidance. We roll over to Mar-25E and raise our TP by 5% to Rs115/share; reiterate BUY.

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