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Systematix Research Report
Strong volume and transmission tariff growth led to a robust seven times jump in GAIL India Ltd.'s Ebitda/profit after tax in Q1 FY24 but fell short of our expectations due to higher opex in the gas transmission business and continued losses at the petrochemical division.
Gas transmission/trading volume increased to 7.5%/2.5% QoQ to 116.3/98.8 million metric standard cubic metres per day led by higher liquefied natural gas volume.
Further volume from petrochemicals/liquid hydrocarbon businesses also improved 37%/7% QoQ to 162/247 kilo tonne.
Transmission tariff increased 46% QoQ to Rs 2.24/standard cubic metre led by the hike in integrated tariff from Petroleum and Natural Gas Regulatory Board from April 01, 2023. However, opex was higher than our expectation due to the use of high-cost LNG at compressors and the reduction of administered pricing mechanism allocation to 0.4 mmscmd from 0.6 mmscmd in Q4 FY23.
GAIL India guided for a reduction in gas cost from Q2 onwards which would enhance the segmental profits. However, due to lower polymer prices, segmental Ebitda remained in the red vs our expectation of a profit.
Also, the management guided for higher utilisation at its petrochemical plant from Q2 FY24 onwards and guided for a break-even price of $10/ metric million British thermal unit at current polymer prices.
Overall, we have cut our Ebitda/profit after tax estimates by 5%/6% for FY24E and keep FY25E estimates largely unchanged to factor in-
adjusting higher opex of Q1, and
Ebitda loss in the petrochemical plant versus a profit estimated earlier.
However, improved outlook and ease of business due to lower spot LNG prices, we have raised our enterprise value/Ebitda multiples by one time which gives a new target price of Rs 135 from Rs 118 earlier.
GAIL India has already challenged the unified tariff order and looking for a 12-15% higher tariff. Any favorable decision would further boost its valuation.
We maintain 'Buy' on the stock.
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