Buy GAIL; target of Rs 443: Emkay

GAIL’s Q4FY16 EBIDTA came in at Rs12.2bn, grew by 5.8% QoQ (our estimate Rs12.2bn), while PAT came in at Rs 7.7bn, grew 16% QoQ mainly on account of lower tax rate to 18% as company has taken MAT credit of Rs 5.9bn. Adjusting to tax rate number came in line with our estimates at PAT level of Rs 6.4bn (our est. Rs 6.2bn). Sequentially, transmission vol. declined by 3% to 95mmscmd and trading vol. down by 4.6% to 74.4mmscmd mainly on account of decline in domestic production mainly from ONGC. Thus, trading volume has also shown drop from 77mmsmcd to 74mmscmd on QoQ basis. However, trading margins have improved by 48bps QoQ to 5.1%. Post stabilisation of Pata-2, petchem production has improved by 38% QoQ to 116kt which has reduced the loss at operating level to Rs 90mn compared to loss of Rs 660mn. For FY17 Company has targeted 120-130kt/quarter production run rate and by start of FY18 plant would run at full capacity.

Operationally result came in line with expectations. Post the benefits of Rasgas renegotiation, we have seen stabilisation of transmission and trading volumes. Also Petchem production volumes have improved post stabilisation of PATA 2 plant which we believe would be big turnaround in earnings. Thus, we see almost double the earnings in FY17E to Rs 28/share compare to Rs 18 in FY16E. Also, other triggers are on card like 1) Upward pipeline Tariff revision and 2) correction in spot LNG price would improves the transmission and trading business earnings. We have rollover our TP on FY18 EPS to Rs 443 (Earlier Rs 428, assigning 13x PE). Currently stock trades at 12.9x FY18 EPS and 1.4x P/BV. Maintain Buy.For all recommendations, click hereDisclaimer: