Buy GAIL; target of Rs 115: Motilal Oswal

Motilal Oswal's research report on GAIL

GAIL reported an 82% miss on EBITDA in 3QFY23 as the company incurred INR11b of inventory losses in the trading segment due to a decline in spot LNG prices to USD20/mmBtu in Dec’22 from USD45/mmBtu in Aug’22.  The transmission segment was affected by the reduction in the domestic gas allocation to ~1.1mmscmd from 1.55mmscmd. The company had to use spot LNG for compressors to make up for the shortfall, which resulted in a loss of ~INR4b. This loss, however, is expected to be recouped in the next tariff revision, albeit over the remaining life of the pipelines. Petrochem production remained muted at 60tmt (40% utilization) as supply disruptions from Gazprom continued and spot LNG prices remained high. Management expects the PATA plant to reach full utilization if LNG prices come down to ~USD16/mmBtu.

Outlook

We value the core business at 8x Dec’24E adjusted EPS of INR11.5. Adding the value of listed and unlisted investments of INR24, we arrive at our TP of INR115/share. Maintain Buy.

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