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GAIL India 2QFY2013 performance highlights and results update

Contributed by Angel Broking

For 2QFY2013, GAIL India (GAIL) reported a lower-than-expected profit due to lower-than-expected profit from natural gas trading and LPG segments. We maintain our Neutral rating on the stock.

Top-line grew by 17.1% yoy: GAILRs.s top-line grew by 17.1% yoy to Rs.11,361cr below our estimate of Rs.12,1 96cr, mainly due to weak performance in the natural gas trading segment and the LPG segment. The revenues from the natural gas trading business grew by 28.0% yoy to Rs.9,697cr. However, gas transmission volumes decreased by 10.9% yoy to 106mmscmd during 2QFY2013. The companyRs.s share of fuel subsidy burden increased by 38.6% yoy to Rs.786cr in 2QFY2013.

EBITDA declines by 17.6% yoy: The EBIT of the natural gas trading and LPG segments decreased by 14.6% and 81.1% yoy to Rs.245cr and Rs.66cr, respectively. Consequently, GAILRs.s EBITDA decreased by 17.6% yoy to Rs.1,380cr; the EBITDA margin also contracted by 513bp yoy to 12.1% in 2QFY201 3.

Higher other income mutes bottom-line decline: Other income increased by 104.1% yoy to Rs.237cr whereas the interest costs increased by 15.5% yoy to Rs.26cr. Consequently, the net profit decreased by 10.0% yoy to Rs.985cr, much below of our estimate of Rs.1,129cr.

Outlook and valuation: Over the past one year, gas production from the KG basin has declined significantly. Further, we do not expect any meaningful increase in the production at KG D6 over the coming two years. Hence, we expect utilization levels for GAILRs.s pipelines to remain low during FY2013-14. Moreover, a cap on the gas marketing margin (which is currently under review by the Petroleum and Natural Gas Regulatory Board [PNGRB]) would remain an overhang on the stock. Hence, we maintain our Neutral rating on the stock.