Gail reported Q1FY17 numbers, which came in higher than our estimates. Revenues declined 13.6% YoY to | 10851.8 crore and were lower than our estimate of revenue of | 16110.1 crore mainly on account of lower gas costs. EBITDA increased 52.6% YoY to | 1593.3 crore and came in above our estimate of | 1304.8 crore mainly due to higher-than-expected natural gas transmission, natural gas trading and petrochemicals segment EBIT .Subsequently, PAT during the quarter increased 2.1x YoY to | 1335.2 crore (our estimate: | 686.8 crore). Higher-than-expected other income at | 605.4 crore (due to the Mahanagar Gas stake sale) vs. our estimate of | 220 crore contributed to reported PAT.
Outlook and Valuation : Gail India has received six tariff revisions till Q1FY17. Also, it is awaiting tariff revision for five other pipelines (including HVJ pipeline). Positive judgement by APTEL, tariff revision for major pipelines and restoring gas volumes to higher levels would serve as key triggers for the stock. Stabilisation of the petchem business would be an important factor to watch for the stock, going ahead. They have valued the company using the SOTP methodology, valuing the core business using DCF and assigning a target multiple to the EBITDA of other business segments. They have a BUY recommendation on Gail with a target price of | 475.