INSUBCONTINENT EXCLUSIVE:
CLSA has a buy call on GAIL (India) with a target price of Rs 435.
The current market price of GAIL (India) is Rs 378.25.
Time period given
by the asset management firm is one year when GAIL (India) price can reach the defined target
CLSA's view on the company:US LNG drives sharply higher gas trading profits and lower opex; BUY Gail’s 1QFY19 net profit was 23 per cent
This beat was primarily driven by benefits from rising volume of attractively-priced US LNG cargoes in the form of notably higher gas
trading profit and lower petchem opex
Mgmt guides to these benefits continuing
Gail also expects volumes to improve in petchem as well as LPG transmission after one-off factors impacted 1Q
We raise EPS by 4 per cent and TP to Rs435 (Rs405); BUY
Inclusion of gas in GST, tariff hike for DUPL, curb on petcoke use and more city gas wins are triggers in 2H.
A 23 per cent beat on net
profit; Ebitda/Ebit stood 19/23 per cent higher as well: At Rs12.6bn (+23 per cent YoY/QoQ), Gail’s standalone 1QFY19 net profit was a
notable 23 per cent ahead of our estimate
Ebitda (Rs25.3bn, +27 per cent YoY/+22 per cent QoQ) stood 19 per cent ahead and Ebit was 23 per cent more than our estimate
Higher other income was offset by higher depreciation and larger-than-anticipated tax rate.
All segments outperform other than gas
transmission: Nearly two-third of Ebit surprise was driven by a massive 95 per cent beat on gas trading Ebit due to 9 per cent higher
volumes and a 216 per cent YoY jump in unit trading margin to a 10-quarter high of Rs624/scm mainly due to rising share of US and Russian
One-fourth of Ebit surprise came from 112 per cent beat in petchem Ebit, which rose 5.7x QoQ
This beat was completely due to a surprise US$53/tonne QoQ decline in petchem opex even as price for RasGas LNG rose QoQ
Management explained that this was due to high share of cheaper Russian and US LNG volumes in the input mix
Petchem realisation was slightly lower, while volume was 10 per cent lesser as one-off factors impacted 1Q production
LPG production Ebit was 5 per cent higher, as lower volumes were more than offset by slightly better realisation and notably lower opex
Gas transmission Ebitda missed by 1 per cent but Ebit was 4 per cent below as some recent capitalisation drove up segment depreciation
Gas transmission volume was in-line at 107mmscmd
Lower LPG transmission volumes (-8 per cent QoQ) due to shutdown of a customer facility was more than offset by higher blended tariffs and
segment Ebit was 3 per cent ahead.
Raise EPS by 4 per cent and target to Rs435/share; reiterate BUY: In its post-results conference call,
Gail’s management highlighted that gains due to US LNG volumes in the form of higher gas trading profits and lower input costs for petchem
This arbitrage of ~US$1.5/mmbtu for US LNG over spot Asian LNG could clearly be a tailwind for Gail (link)
Management also highlighted that petchem capacity utilisation is now at 90 per cent and this should bring further opex efficiency
Building these benefits, we raise EPS by 4 per cent and target to Rs435
We expect gas in GST within six months, which could add c.Rs35 to fair value/Rs3.5 to EPS
A tariff hike for DUPL pipeline, more wins in ongoing city gas bidding round by Gail or its subsidiaries/JVs and potential actions to curb
use of petcoke are other possible 2H18 triggers.
