GAIL Q2 Results Review - Petrochemical Segment Remains A Pain Point: Motilal Oswal
Petchem segment’s profitability will be a key concern amid a weak petchem pricing environment.
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Motilal Oswal Report
GAIL India Ltd. reported Ebitda of Rs 34.9 billion in Q2 FY24, 54% above our estimate of Rs 22.7 billion. It was driven by a stronger-than-expected performance in the gas transmission, trading and petchem segments.
Domestic gas demand remains strong and GAIL expects gas transmission volumes to rise up to 124 million metric standard cubic metre per day by FY24 end. It also expects volumes to grow up to 132 mmscmd in FY25.
The deallocation of domestic gas for use in compressors has adversely impacted GAIL by Rs 12 billion on an net present value basis. However, it has already notified the issue to Petroleum and Natural Gas Regulatory Board and expects to recover the amount in subsequent tariff revisions.
The petchem segment reported an Ebit loss for the fifth consecutive quarter, but it narrowed to Rs 1.6 billion in Q2 FY24 from Rs 3 billion in Q1 FY24 due to cost optimisation measures.
In our view, the petchem segment’s profitability will be a key concern amid a weak petchem pricing environment.
We value the core business at 10 times FY25E adjusted earnings per share of Rs 11.7. Adding the value of listed and unlisted investments of Rs 23, we arrive at a target price of Rs 140/share. Maintain 'Buy'.
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