Hold GAIL (India); target of Rs 97: Sharekhan

Sharekhan's research report on GAIL (India)

Standalone operating profit/PAT of Rs. 1,765 crore/Rs. 1,537 crore, down 60%/47% q-o-q was 25%/10% below our estimates due to weak profitability (ex-LPG transmission) across business segments. Gas marketing/LPG-LHC/gas transmission EBITDA fell by 81%/21%/7% q-o-q to Rs. 452 crore/Rs. 524 crore/Rs. 1,010 crore; petchem posted EBITDA loss of Rs. 210 crore. The big miss was driven by the gas marketing division, which had to face double whammy of weak marketing margin/volume, down 80%/8% q-o-q. Petchem loss was due to lower utilization of only 43% and 10% q-o-q decline in realisation while the LPG-LHC segment got impacted by higher domestic gas price and 16% q-o-q fall in realisation. H2FY23 earnings would continue to face headwinds with LHG-LHC profitability to get affected by APM gas price hike, likely continued loss in petchem on weak utilisation/high LNG price and opex while gas marketing earnings to remain volatile and unpredictable in near term. We cut our FY23 earnings estimate by 10% to factor weak H1FY23 performance.

Outlook

We maintain our Hold rating on GAIL with a revised PT of Rs. 97 (lowered to reflect higher net debt) given a limited upside potential from the CMP and continued concerns of earnings across segments.