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GAIL 3QFY2014 performance highlights and results update

January 31, 2014, Friday, 09:44 GMT | 04:44 EST | 15:14 IST | 17:44 SGT
Contributed by Angel Broking

GAIL’s 3QFY2014 net sales and net profit were above our estimates due to better-than-expected performance from its Natural Gas trading segment. However, we maintain our Neutral rating on the stock.
Top-line grew by 28.1% yoy: GAIL’s top-line grew by 28.1% yoy to Rs.15,981cr which was above our estimate of Rs.13,734cr due to a better-than-expected performance of the Natural Gas trading segment. Natural Gas trading, LPG and Natural Gas transmission segment revenues grew by 31.3%, 51.4% and 20.2% yoy respectively and its fuel subsidy burden stood at Rs.1cr in 3QFY2014 (vs Rs.700cr in 3QFY2013 and Rs.699cr in 2QFY2014).
Poor performance of Petrochemicals and Natural Gas transmission segments mutes EBITDA growth: The Petrochemicals segment’s EBIT declined by 23.6% yoy to Rs.336cr and the Natural Gas transmission segment’s EBIT declined of 33.6% yoy to Rs.411cr, thus resulting in GAIL’s EBITDA posting a muted 11.5% yoy growth to Rs.2,232cr in 3QFY2014 whereas the EBITDA margin contracted by 208bp yoy to 14.0%.
Higher depreciation and interest costs drag PAT: Depreciation expenses increased by 24.1% yoy to Rs.301cr, whereas the interest expenses increased by 65.4% yoy to Rs.91cr. The company reported an exceptional item related to gain on sale of long term investment of Rs.345cr. Excluding the exceptional gain, the adjusted net profit grew by just 3.9% yoy to Rs.1,334cr (above our estimate of Rs.1,229cr).
Outlook and valuation: Over the past few quarters, GAIL’s transmission volumes have declined due to lower domestic gas production. Looking ahead, we do not expect any meaningful increase in the domestic production over the coming one year. Hence, we expect utilization levels for GAIL’s pipelines to remain low during FY2015. Moreover, GAIL’s high margins in the Natural Gas trading segment are unlikely to sustain over the medium to long term. Hence, we maintain our Neutral rating on the stock.