Motilal Oswal's research report on GAIL
GAIL reported EBITDA of INR3.1b in 4QFY23 (est. INR15.1b) due to high feedstock costs in petrochem segment and a weak performance in transmission segment due to one-off items. The transmission segment saw an adverse impact of ~INR8b in FY23 due to de-allocation of domestic gas for compressor fuel. This is not expected to continue going forward as GAIL has already represented the issue to PNGRB and recovery is expected to happen in subsequent tariff revision. Additionally, the management expects incremental benefits of INR15b in the transmission segment due to an increase in tariffs to INR58.6/mmBtu in FY24 from ~INR43/mmBtu in FY23. Transmission volumes are also expected to increase to 118mmscmd in FY24 from 107mmscmd in FY23.
The stock trades at a ~34% discount to its one-year forward long-term P/E average. By valuing the core business at 8x FY25E adjusted EPS of INR12.5 and adding the value of listed and unlisted investments of INR25, we arrive at a TP of INR125/share. We maintain BUY on the stock.
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