Sharekhan's research report on GAIL (India)
Q1FY23 PAT of Rs. 2,915 crore, up 9% q-o-q was significantly above ours and the street’s estimates, led by phenomenal performance of gas marketing business that offset a sequential decline in other segments. Gas marketing EBITDA grew strongly by 35% q-o-q led by higher trading margin/volume growth but EBITDA from the gas transmission/petchem/LPG-LHC segments declined by 6%/66%/12% q-o-q. Petchem earnings declined due to 50% fall in sales volume while LPG-LHC got impacted by higher domestic gas price. Recent force majeure by Gazprom to stop supply of LNG would affect GAIL as it would hit petchem production (leading to 50% utilization), decline in gas marketing/transmission volume by 5-6 mmscmd/7 mmscmd. LHG-LHC profitability to get affected by a likely hike in domestic gas prices from October 2022. We cut our FY23/FY24 earnings estimate by 7%/8%.
Outlook
We downgrade GAIL to Hold (from Buy) with a revised PT of Rs. 152 as multiple earnings headwinds make us lower EV/EBITDA multiple across major segments and we see limited upside potential from the CMP.
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