GAIL (India) Ltd. share price target

ECLX: Cost control saves margins; no respite from structural challenges. GREENP: Healthy quarter; better capacity utilisation to fuel growth. SUNP: Headline beat on low R&D;, US base ex-Taro weaker; REDUCE. IGL: Margins expand, volume growth robust

Markets rally on US-China trade deal

29 August 2019 The completion of three fertilizer plants along the Jagdishpur-Haldia- Bokaro-Dhamra pipeline (JHBDPL), combined with the contribution from Matix Fertilizer start-up and Mangalore Chemicals and Fertilizers (MCFL) conversion, is likely to de-risk ~60% of total US Henry Hub (HH) contracts. The completion of three urea plants (Gorakhpur, Sindri and Barauni) by Hindustan Urvarak & Rasayan (HURL) in addition to Ramagundam Fertilizers and Chemicals is expected to add 9.4mmscmd of marketing volumes for GAIL over the next 3-4 years. The start-up of Matix Fertilizer and the conversion of Mangalore Chemicals and Fertilizers from naphtha to gas could add 3.1mmscmd of sales. ONGCs KG-DWN-98/2 is expected to commence gas production in Dec19, which is likely to ramp up to ~14mmscmd by FY22. Considering that most potential users in the KG basin are power plants that may not be able to take high cost KG basin gas, even 70% routing of KG basin gas to west coast could boost transmission volumes of GAIL by 29%.

operating profits to Rs 2357.61 crore. Cost of material consumed as a percentage of adjusted net sales fell 60 bps to 5.5%. Purchase of stock in trade was up 60 bps to 72.8%. Employee benefit expense rose 20 bps to 2.4%. Other expenses fell 20 bps to 6.3%. Other income was up 30% to Rs 159.9 crore. As a result PBDIT increased 2% to 2517.2 crore....

Gail India reported a mixed set of numbers for Q1FY20. The better profitability of gas trading and gas transmission business was negated by lower profitability from the petchem segment and LPG segment. EBITDA at | 2259 crore (flattish YoY)) came in line our estimates of | 2124.8 crore. Subsequently, the reported PAT at | 1287.5 crore (up 2.2% YoY) also came...

Beating ours as well as consensus estimates, GAIL (India) has reported a strong performance in 1QFY20. Its EBITDA grew by 1% YoY and 34% QoQ to Rs22.6bn led by higher margin (US$0.39/ mmbtu vs. US$0.26 in 1QFY19) in gas trading and higher tariff realisation (US$0.62/mmbtu vs. US$0.56 in 1QFY19) in gas pipeline segment. Despite lower spot LNG prices and 2% QoQ fall in gas trading volume, gas trading segment's EBITDA jumped by 46% QoQ on the back of favourable gas trading mix (higher RLNG and lower domestic gas). Its reported net profit grew by 2% YoY and 15% QoQ to Rs12.9bn backed by higher other income (+26% YoY) and lower interest expense (-46% YoY). The Company expects to increase the utilisation level of its petrochemical...

Concerns over petchem worsens; Gas trading one-off relief 1QFY20 EBITDA was flat YoY at INR22.6b (in-line), led by better marketing segment performance, while petchem continued its poor performance. Depreciation was higher by 7% YoY, which was offset by lower interest cost...

GAIL's Q1FY20 PAT/EBITDA surpassed estimates at Rs 13bn/Rs 23bn (+2.2%/flat YoY).

As the domestic NG ecosystem (CGD network, re-gas terminals, pipeline connectivity, revamp of fertiliser plants) develops, India could derive maximum benefit of LNG prices. Given GAIL's dominant position in India's gas pipeline network, its gas transmission business is likely to remain in a sweet spot. New US liquefaction terminals will not only boost RLNG exports but also keep Henry Hub (HH) prices subdued, enabling GAIL to swap cargoes. Thus, US LNG is not a stress point. Our SOTP target is Rs 201 (7.5x Jun-21E EV/e for the stable Gas and LPG transmission businesses, 5.0x EV/e for the volatile gas marketing business, 6.5x EV/e for the cyclical petchem and LPG/LHC businesses, Rs 36 for investments and Rs 12/sh for CWIP). GAIL reported a stable 1QFY20 led by improved profitability in gas transmission and trading segments albeit a dismal show by petchem owing to a planned shutdown. Maintain BUY.

Investing to build National Gas Grid, while growing revenue In the next few years, GAIL will invest about `450.0 billion in major crosscountry pipeline projects, such as Urja Ganga Project, Kochi Kootanad Bangalore Mangalore Pipeline, Indradhanush Gas Grid (North East Grid in joint venture mode), and other pipelines connecting crucial supply and demand centers, to build the proposed National Gas Grid (NGG). GAIL will continue to focus on the growth of its core business segments, such as natural gas, petrochemicals, and gas processing. In addition, GAIL plans to look for diversified and fresh business opportunities, which have the...