GAIL reported robust results in 1QFY17 led by improved profitability in gas trading and petrochemical segment. EBITDA was at Rs 15.9bn (+54% YoY) and APAT was at Rs 8.5bn (+65%). RPAT was higher at Rs 13.4bn including profits of Rs 4.9bn from partial divestment of its stake in MGL.The past two years have been challenging for GAIL given the fall in gas volumes and lower profits in petchem/LPG segment (lower realisation and higher feed cost).

A turnaround is expected in FY17 led by (1) Lower RLNG/domestic gas prices, which will improve profitability of petchem/LPG, (2) Rise in crude prices as the petchem/LPG realisations will rise in sync. Gas costs will remain muted owing to the global glut, (3) Increase in gas transmission volumes on account of power pooling and higher demand at the petchem plant, (4) Likely upward revision in network tariff, and (4) Strong marketing margins at lower gas prices.They see structural improvement across all segments. And  their SOTP target is Rs 475/sh (~7.2x FY18E standalone EV/EBITDA and Rs 110/sh from investments).