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GAIL India 3QFY2013 performance highlights and results update

Contributed by Angel Broking

For 3QFY2013, GAIL India (GAIL) reported a better-than-expected profit due to higher-than-expected profit from natural gas trading segment. We maintain our Neutral rating on the stock.

Top-line grew by 10.8% yoy: The company’s top line grew by 10.8% yoy to Rs.12,474cr (above our estimate of Rs.11,986cr), mainly due to higher-thanexpected sales in the natural gas trading segment, which grew by 10.6% yoy Rs.10,118cr respectively. The company’s fuel subsidy burden stood at Rs.700cr in 3QFY2013.

EBITDA increased by 16.4% yoy: GAIL’s EBITDA improved by 13.7% yoy to Rs.2,002cr in 3QFY2013 and EBITDA margin improved by 41bp yoy to 16.0%, mainly due to better petrochemical and LPG segment EBIT which grew by 13.4% and 93.8% yoy to Rs.439cr and Rs.592cr, respectively.

Higher other income boosts PAT: Other income increased by 622.2% yoy to Rs.154cr, leading the net profit to increase by 17.7% yoy to Rs.1,285cr (above our estimate of Rs.1,147cr).

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 GAIL’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.